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Treasury

Closed-loop payment networks are a growing industry challenge

New entrants proposing closed-loop systems that short-circuit traditional approaches represent an existential threat that transaction bankers cannot ignore.

Circular economy concept.
BsWei/Getty Images/iStockphoto

How can a heterogeneous banking industry burdened with regulatory requirements reinvent itself to stay relevant in cross-border payments?

There was much discussion at Sibos this year about the importance of collaboration between banks and fintechs. The more interesting challenge is what banks are doing to ensure they do not end up as mere settlement providers.

This would have a dramatic impact on revenue.

Shirish Wadivkar, global head of correspondent banking products at Standard Chartered, suggests that such a scenario is unlikely, but no more unlikely than traditional banks sustaining their market share indefinitely.

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Shirish Wadivkar, Standard Chartered

“Either way, the reality will be compression of our overall business margins, because even moderate increases in volumes moving to closed-loop payment networks will impact average yields from payments,” he says.

Banks have stepped up through their participation in both Swift’s new strategy for payments and the Bankers Association for Finance and Trade’s (Baft) global payments industry council.

The noise around distributed-ledger technology (DLT) pushed the industry – and especially Swift – to react and helped drive forward initiatives such as Swift gpi, according to Ross Jones, global payment solutions director at Barclays.

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