As the global economy grows increasingly interconnected, cross-border payments have become a critical area of focus.
Yet, as pointed out before by Payments Cards & Mobile, challenges such as high transaction costs and complex compliance processes continue to plague the correspondent banking model, a backbone of international finance.
Policymakers and financial institutions alike are now turning to innovation as a means of revitalising this system.
Correspondent Banking in Decline
Despite generating $200 billion in annual revenue, the correspondent banking sector has faced a steady decline in relationships over the past decade.
Historically a high-margin business, it is now under pressure from rising costs and competition.
These challenges are exacerbated by growing anti-money laundering (AML) and counter-terrorism financing (CTF) requirements, which add complexity and erode profitability.
A significant issue is the uneven distribution of correspondent banking services.
High-income countries typically enjoy robust coverage, while smaller, lower-income countries face higher risks and reduced competition due to limited access to banking corridors.
This inequality threatens to leave vulnerable regions even more isolated from the global financial system.
Standardisation as a Solution
One promising avenue for reducing the costs of compliance is the standardisation of messaging formats.
The introduction of ISO 20022, a universal messaging standard, aims to streamline compliance processes by unifying the information required for AML and CTF checks.
However, adoption of the standard remains inconsistent.
According to the latest survey by the Official Monetary and Financial Institutions Forum (OMFIF), a significant proportion of payment service providers in emerging markets may miss the November 2025 deadline for implementation.
Efforts to harmonise messaging standards must accelerate if the full potential of ISO 20022 is to be realised. Without widespread adoption, the industry risks perpetuating inefficiencies and maintaining a fragmented system.
Harnessing Artificial Intelligence
Artificial intelligence (AI) is emerging as a transformative force in the correspondent banking sector.
AI tools can automate labour-intensive processes such as data reconciliation and compliance checks, significantly reducing costs.
For instance, neural networks can map discrepancies in messaging formats, while sequence-to-sequence models enable seamless conversion between standards.
The benefits of AI extend beyond cost savings.
By enhancing the accuracy of AML/CTF checks, these technologies improve trust in the financial system. Moreover, AI-driven systems can adapt to evolving regulatory frameworks, ensuring ongoing compliance without requiring extensive manual updates.
However, implementing AI solutions is not without challenges.
Financial institutions must invest in upgrading infrastructure and integrating AI tools into existing workflows.
This process demands careful planning to avoid disruptions, as even brief downtime in cross-border payment systems can result in significant financial losses.
The Role of APIs in Modernising Payments
Application programming interfaces (APIs) offer another path forward by enabling secure data sharing between financial institutions.
APIs can connect legacy systems with modern platforms, allowing for real-time validation of transactions and reducing errors.
For example, APIs can pre-validate payment details to minimise the occurrence of failed transactions.
Despite their potential, APIs face hurdles in achieving global harmonisation. Proprietary API standards, designed to meet the unique needs of specific jurisdictions, often lack interoperability.
Recognising this challenge, the G20’s Committee on Payments and Market Infrastructures has issued recommendations for standardising API frameworks, which could enhance efficiency and transparency in cross-border payments.
A Path to Resilience
Revitalising correspondent banking is crucial to ensuring the accessibility and affordability of cross-border payments.
The future of correspondent banking depends on collaboration among policymakers, financial institutions, and technology providers. By working together, these stakeholders can create a resilient and inclusive payment ecosystem that meets the needs of a rapidly evolving global economy.
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