Correspondent banking faces a costly and complex future
Not long ago, correspondent banking was as basic as finance got. These days it is compliance and cost-heavy and in the crosshairs of aggressive and powerful regulators. Little wonder that so many banks are exiting small or fragile markets – actions that help their bottom line but hinder efforts at financial inclusion.
Once upon a time, correspondent banking was as basic as the financial industry got. Its premise was – in many ways still is – extremely simple.
Correspondent banks are financial middlemen that act as go-betweens in cross-border transactions. Often on the large side and with a regional or global branch network, they act as conduits between usually smaller and more localized respondent banks that want to do business with each other but lack formal ties.
This business can involve pretty much anything finance related, from wire transfers and payment processing to settling trades by crediting or debiting accounts.