Exclusive MagnaCarta research commissioned by Banking Circle has identified that banks are not only being pushed by FinTechs to innovate, but many are dissatisfied with current cross border payment solutions.
The in-depth research set out to understand the impact of FinTech and the disintermediation of the cross border transactions and payments businesses on mid-size European banks. A series of interviews with heads of correspondent banking, cash management and transaction banking at large and mid-sized institutions provided unique and highly valuable insight. The banks interviewed during this research are taking the FinTech competition seriously and are actively seeking a better service for their customers.
Click here to download the Banking Circle white paper: ‘Re-drawing the Map: The changing landscape of cross border banking and payments’
A Shifting Landscape
Ireti Samuel-Ogbu, Managing Director, EMEA Payments and Receivables Head with Citibank’s Treasury and Trade solutions division, believes it is time for an overhaul of cross border payments: “Cross border in terms of SWIFT payments is just over 40 years old, and it’s clear that this market is ripe for change. Recently there have, been significant steps forward with the launch of SWIFTnet, initiatives like gpi and the exploration of incorporation of new technology and Fintech partnerships into the existing SWIFT model.”
Deutsche Bank is also preparing itself for competition. The bank’s Global Head of Institutional Market Management, Cash Management, Marc Recker, commented: “Deutsche Bank is the number one Euro clearer and top Dollar clearer in Europe, and plays a strategic role in correspondent banking, yet even we cannot sit back and turn a blind eye to competitors in the market.
“SR Bank is a small regional player, but the largest savings bank in Norway. SR Bank’s Vice President, Payments, Geir Gundersen confirmed that the bank is seeing an increase in the number of customers in need of cross border payments. “Our customers are increasingly seeking international payment solutions, and we are regularly acquiring new corporate business from companies with international trading ambitions. As such, much of our income today is connected to our foreign exchange transactions.”
ATB Financial, a local bank based in Canada, is also seeing growing numbers of corporate clients sending and receiving cross border payments. Mariia Khriachtcheva, Director Payments, ATB Financial, commented: “Demand is currently very high from new and existing business clients looking to minimise the cost of wires and reduce cheques. Cross border is therefore of strategic interest to us. We are in the process of partnering with universities on AI and virtual assistant capabilities for payments, as well as creating a digital-only challenger bank. The market is changing rapidly, and ATB Financial is stepping up to the challenge.”
Mariia Khriachtcheva continued, “We are currently only able to offer cross border payments for our business clients, and the service is based on the outdated SWIFT wire service. We don’t yet have a scaled solution on the business side, and the settlement model is not workable due to transaction sizes and the needs of business clients.”
SR Bank too, is struggling to make SWIFT work for its business customers. Geir Gundersen said: “With SWIFT we are a small player and cannot get attention or the right pricing. As such, we are looking at different opportunities to make payments as smooth and cheap as possible.” Citibank is also looking at alternative solutions. Ireti Samuel-Ogbu added: “Around 11,000 banks are connected via the SWIFT network, this is a big positive for the current system in terms of critical mass, path to scale of new solutions, technology and robustness.”
Marc Recker of Deutsche Bank expects to see rapid change in the near future: “Market pressure, and customer expectation for full transparency, will significantly reduce the margins for international payments. Of course, international payments have a cost base, so we do not believe they can be conducted for free, but there must be transparency. We expect FinTechs to deliver on certain corridors, and they are likely to force banks to make cross border payments cheaper. Payments are already digital, but the customer experience around the core payment itself still needs looking at.”
Looking to the Payments Horizon
Recker continued: “Looking forward, further dialogue is undoubtedly required between regulators, banks and other stakeholders to avoid unintended consequences of regulation. This would help to provide a level playing field in the industry and foster harmonisation across varying jurisdictions.”
At such a critical time in the life of the industry, it is vital that banks and FinTechs work in collaboration to meet today’s challenges. Addressing the issue of costs begins with making significant developments towards instant payments, 24/7. SWIFT net and gpi are already beginning to address some of the challenges, and the Bank of England RTGS renewal programme will deliver the next generation of real-time gross settlement.
Gundersen confirmed that SR Bank is one of the few banks currently providing cross border payments in Norway. “Traditional banks are our main competition, but we are competing with FinTechs to a certain extent. The FinTech landscape is getting increasingly difficult to navigate, but with larger banks wishing to focus on larger customers, the window is opening for mid-tier banks like SR Bank. As is common in Scandinavia, we have always worked in collaboration with other banks. This works well, spreading the cost and bringing mutual benefits, and we expect to see the model grow rapidly around the globe in coming years.”
Khriachtcheva added: “ATB Financial is not looking to differentiate between local or cross-border transactions. Instead, we want to focus on offering our clients a smooth experience – corporate customers are looking for clarity, transparency and efficiency, and we see an opportunity to serve them better. Historically, banks were in a dome of protection, but with new challengers and FinTechs changing the landscape, this is no longer the case. This is an exciting time in banking and payments, and we are investing heavily in preparing for the challenge.”
It is clear from these unique insights that, despite these banks working in different regions, they are all gearing up to take on their biggest challenge in generations. As the international banking and payments map is redrawn, the winners will be those institutions – large and small – which can fully embrace a digital mindset and partner with financial utilities to deliver the best solutions for their customers.
Click Here to Download the Banking Circle white paper: 'Re-drawing the Map: The changing landscape of cross border banking and payments'
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