Shifting tides in cross border banking
Strong currents are pulling at the international banking and payments industry, redrawing the map. Anders la Cour, Saxo Payments Banking Circle CEO, uncovers the opportunities which exist for institutions of all sizes – if they are up to the challenge.
For the first time in generations, the cross border payments map is being redrawn. New entrants are changing expectations and demand. Digital-first business is growing rapidly and as these firms are often global from the start, it is essential to their success that they have access to fast, affordable and easy to manage cross border payment solutions. Large global banks are retreating from their traditional correspondent banking partnerships, leaving many businesses without access to affordable cross border payment options within their usual bank.
This whirlwind of market changes, alongside new regulatory requirements, is creating a dramatic storm in the industry.
This is a market which has been essentially unchallenged since international trade first began, so many traditional banks have found it difficult to adapt and compete effectively. However, incumbent providers have not yet lost the battle.
Banking Circle recently commissioned research into the changing payments and banking landscape. This was compiled from a series of interviews with mid-tier and large banks. The new Banking Circle insight paper, ‘Re-drawing the Map: The changing landscape of cross border banking and payments’, reveals that incumbents of all sizes do in fact remain best-placed to seize the opportunity of the industry overhaul, as long as they are ready for the challenge.
Meeting this challenge will only be possible for fully-committed banks, ready for a fundamental shift in the institutional mindset. Smaller banks, many of which are already seeing rapid growth in their corporate customer base, also have great opportunity in the new landscape. FinTechs have yet to make a significant dent in the dominance of the banks, but this will only remain true if banks adapt to remain competitive.
In these early stages of the digital economy, large institutions will continue to dominate the payments space. However, they will need support from regional hubs, presenting smaller banks with a huge opportunity.
These smaller institutions are in a strong position, with their extensive local knowledge and experience, and existing customer relationships. This is supported by their leaner cost structures, allowing them to compete with established correspondent banking providers.
Taking a leaf out of the FinTech book
FinTechs are thriving in the consumer market, and are likely to prosper in the corporate payments space in the coming years. The consumer proposition is simple but highly effective: provide a service which is transparent, fast, cheap and packaged in a consumer-friendly way. Cross border FinTech payment volumes are still low in comparison with that of the banks, but their influence is powerful.
At this point in the evolution of B2B payments, there is an exciting opportunity for banks to provide solutions to better serve their corporate customers. But, to make this happen, we come back to that requirement of a fundamental shift. Not an easy thing for a traditional bank to enact.
Internal silos must be un-siloed, opening the way for cross-selling between international product lines. Services must be more flexible, more transparent, more affordable, and must meet the specific needs of increasingly digital businesses.
‘Re-drawing the Map’ includes insights from interviews with heads of correspondent banking, cash management and transaction banking at large and mid-tier institutions across Europe, and in Canada. The study shows that banks of all sizes are recognising the challenges ahead and stepping up to meet new expectations.
It is encouraging to see how banks are embracing the need to work with external partners across the banking ecosystem, to provide the best possible solutions and service levels. This is the only way banks will survive in the digital economy.
Taking on the competition
Whilst alternative payment providers are well able to offer faster, cheaper solutions to specific payment needs, the market is wide open for institutions of all sizes to offer integrated corporate solutions. An alternative to alternative payments.
Due to the high level of competition in the global market, digital businesses have tight margins and are therefore more focused on transaction costs and speed than their predecessors may have been. Cashflow is under more pressure in the digital age.
Banks, with their long-standing business customer relationships, understand the specific needs of their corporate customers. As such, they can create solutions tailored to work with the complexities of the modern treasury, while matching high service expectations.
To compete with the rising tide of FinTech insurgents, banks will need to move away from their traditional and complex web of fees and internal cross-selling subsidies. They will need to provide transparent, cost effective, fast solutions for both local and cross border transactions.
The banks interviewed during this research are taking the FinTech competition seriously. They are 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.
To access your free copy of the full research report ‘Re-drawing the Map: The changing landscape of cross border banking and payments’, click here.