Globalization and technological development, along with change fueling events, such as Covid and the recent Russian – Ukrainian war, have significantly affected how people connect and trade with one another.
These macro changes had, in turn, changed almost every aspect of our lives. In our financial management world, these changes have even further accelerated adoption and access to already existing technologies such as trading platforms, cryptocurrencies, lending and cross border trade.
They call themselves disruptors. Nimble. Transformation driven. Innovative. Cool. Envisioning themselves as the ones who will finally kill the ‘evil’ middleman called banks.
In concept, the idea sounds right. However, when you dig deeper into the value proposition of almost every fintech startup globally, they are all still very reliant on the traditional banking infrastructure. And not without cause.
Banks have always been one of the most regulated yet, safest and most trusted institutions around the world. One can deposit their monthly paycheck and be confident that it will not vanish the next day due to an information leak or a criminal offense. Moreover, for decades, legislators have put safeguards and insurance structures that protect and reimburse depositors if such failure occurs.
In fact, the number of registered bank failures has seen historic lows in the US over the past five years. Only eight banks have failed, and none have failed during the post-pandemic boom of 2021 and 2022. A result to be proud of during one of the most challenging periods the world has known.
Does This Transformation Affect All Banks?
During the past two years, we have witnessed significant transformation across the entire tech industry, specifically in the financial technologies’ sector, where evaluations have skyrocketed to numbers only a few global banks enjoy.
Surprisingly, these trends had by no means affected big names like the bank of America, CITI, Wells Fargo and JP Morgan. When it comes to the cross-border payments market, only a few have managed to get a significant chunk out of the $156 trillion total global cross border payments market size, generating almost $3 trillion in annual revenues and a 5% yearly growth rate. On the other hand, smaller banks, considered second and third-tier correspondent banking service providers, have witnessed a continuance decline in their already shrinking correspondent-banking market size.
Can small and medium-sized banks keep up?
According to the latest correspondent banking survey conducted by the European Central Bank small and medium-sized banks have been experiencing a decrease in their role in the correspondent banking business. This trend has been steady for the past ten years, and many banks accept this as granted and look for other business opportunities that will generate further growth.
And yet, despite the negative outlook for small and mid-sized banks, a growing number of fintech challengers and new technological developments are now enabling any bank, regardless of its size, to launch a complete cross-border correspondent banking offering for fintechs and FIs to serve a constantly growing number of businesses trading with counterparties all around the world.
It’s time for a new paradigm
Last month, our team visited New York to meet with customers and prospects who now have the understanding and acknowledgement that a new approach needs to be taken concerning the opportunities within the correspondent banking industry. Some of these banks have already deployed and offer a correspondent banking service to their financial institution customers. Others are exploring ways to implement their own offering as a new revenue generator.
For most of them, the challenge remains the same: transforming a complicated, manual and trust-based relationship into a streamlined, cost-effective and growth-driven, revenue-generating product offering.
During our meetings, what surprised us was the passion these banks have for widening their value proposition for their customers and the fact that the current legacy systems and processes haven’t changed much in nearly 40 years.
For a bank, looking to support innovative business models, it’s crucial to be acquainted with the latest technologies available in the market. Otherwise, as we have already marked, they will just be unable to keep up with the pace.
The good news is that, in today’s world, banks have the privilege to deploy state of the art solutions without the endless procurement and IT deployment processes that were once part of any such change. With just a simple API integration, any bank can swiftly deploy the latest technological solutions and have the control and management capabilities that have never been available before.
Looking for the right way to accept payments?
Imagine that with a few clicks of a button, you can easily configure the exact types of transactions, the currencies, values, underlying customers, and regions you are willing to consume and define the exact requirements per each type of transaction, your customer needs to adhere to. Imagine you can seamlessly accept any type of payment message, an MT103 SWIFT message, for example, enrich it automatically and transform it to any other type of payment message, in full compliance with ISO 20022, and without doing anything on your end. This is true interoperability across payment rails, and it can be achieved today, not in years and thousands of working hours.
And this is precisely the vision we had when we first thought of founding our company. We knew that what we will offer would genuinely change the way financial institutions work with one another.
The correspondent banking business is a crucial pillar in further driving and advancing global trade, and it is expected to continue to play such an essential role in the years to come.
Looking ahead, it’s imminent that we will witness a significant change in the role small and medium-sized banks have in the international correspondent banking industry. This change will not come without its proper challenges but will surely bring a new future for correspondent banking and to the way value moves around the globe.
We have been working hard to bring our vision into reality during the past year and a half. It’s been a wild journey, and today, more than ever, we understand how significant our work can be for the international correspondent banking ecosystem.
Ultimately, at TenureX, we are not only here to support banks and financial institutions during these transitional times, but also to take a substantial part in the force that will drive this change and the correspondent banking market in the future.
Want to join the revolution?