the netwORK FOR GLOBAL COmmeRCe bankingcircle.com

the changing landscape of cross border banking and payments

Re-dRAwinG the mAp

A Saxo Group company

intROduCtiOn

multiple forces are tearing up the map of correspondentbanking and cross border transactions. the rise of thedigital-first business, which is often global from inception;the retreat of large global banks from their correspondentbanking networks; and increased customer expectations formore fluid, lower cost international payments. these arecoming together to shake up a market largely unchallengedsince the dawn of international trade.

margin compression, the influence of consumer-driven Fintechinnovations, and regulatory enforcement designed to open up fiefdomsthat were previously closed to outside competition, are partlyresponsible. But while the market may be at an inflexion point, the battleis far from lost for incumbent or institutional providers of cross borderbanking services. So far.

while the map is being re-drawn, as this paper based on insights frominterviews with mid-tier and large banks reveals, incumbents of all sizesremain in pole position to seize the opportunity of the industry’s gradualdigital overhaul. For the moment.

the challenge ahead is not for the faint of heart. meeting it will requireresolute commitment and a progressive shift in institutional mind-set.the research emphasises that to seize the opportunity, banks shouldstart from the top with a strategic re-think of the cross border productset, working right through to sales, marketing and distribution channels.

institutions that put the customer and the re-definition of global business atthe centre of their operations - and can banish the rigidity of the pre-digitalage - will be best poised to benefit from the new golden era for global trade.

Saxo payments Banking Circle believes that winning in the digital age isnot about making existing processes faster or better but re-imaginingprocesses to put the customer first. Banks should be moving up thevalue chain and focussing resources on delivering the best possibleservice to the customer, allowing core banking functions to be deliveredby financial utilities which have the technological capability to do somore cost-effectively and efficiently than they can. that is why we havesponsored this white paper, researched and published in partnershipwith magnaCarta.

anders la CourCo-founder and Chief executive OfficerSaxo payments Banking Circle

COntentS

introduction – p2

interviewees – p3

executive Summary – p4

1. the Rise of the Connectedtreasury – p5

2. Smaller is Beautiful – p7

3. Blurred Lines – p12

4. the early Years – p14

Conclusion – p15

about the authors – p16

Re-dRawing the map

bankingcircle.compAGe 2

halvor Landehead of digitalization, Businessdevelopment and innovationdnB, norway

Re-dRawing the map

will BeesonCo-founder and head of newpropositionsCivilised Bank, uK

bankingcircle.com pAGe 3

inteRVieweeSRe-drawing the map includes insights from twelve large, mid-tierand new banks and payment organisations in europe, Asia andCanada. we would like to give our thanks to all the intervieweeswho contributed to the research for this report.

andrea dunlopChief executive Officer, Acquiring andCard Solutionspaysafe Group, uK

wim grosemanshead of product management, payments and ReceivablesBnp paribas, Belgium

geir gundersenVice president, paymentsSR Bank, norway

harry newmanhead of BankingSwiFt, uK

michal přikrylhead of Corporate Cash managementCeska Sporitelna, Czech Republic

marc ReckerGlobal head of institutional marketmanagement, Cash managementdeutsche Bank, Germany

ireti Samuel-Ogbumanaging director, emeA head,payments and Receivables, treasuryand trade SolutionsCiti, uK

Lars SjögrenGlobal head of transaction Bankingdanske Bank, denmark

Rastislav Vallohead of payment Cardstatra Banka, Slovakia

michael Vrontamitishead of trade, europe & Americas,transaction BankingStandard Chartered, hong Kong

mariia Khriachtchevadirector, digital paymentsAtB Financial, Canada

bankingcircle.compAGe 4

exeCutiVe SummARYRe-drawing the map includes insights from interviews with heads of correspondentbanking, cash management and transaction banking at large and mid-tierinstitutions across europe and in Canada. the interviews were conducted betweenFebruary and April 2018.

the research identifies four primary themes to help banks re-think the approachof their international banking and transactions businesses:

Commitment over complacencyit’s fair to say that the Fintech revolution hasscarcely dented the dominance of traditionalfinancial services providers. Cross border bankingin particular remains a relatively protected,rarefied marketplace, characterised by entrenchedrelationships and risk aversion among corporatetreasurers. nevertheless, smaller institutions arealready seeing rapid growth in their corporatecustomer base for services previously provided bylarger banks. Greater commitment tounderstanding what business customers need, andhow to match demands for lower transaction costsand greater transparency, are becoming the newcompetitive front line.

01Simplicity over sizethe consumer Fintech proposition is simple buteffective: offer a transparent service, at lower cost,packaged in a customer-friendly experience. whilecross border Fintech transaction volumes are stillsmall, their influence on delivery across the financialservices industry has been transformative. Asconsumer Fintech inspiration filters through to thecorporate treasury, growing comfort with non-bankcompetitors is becoming the norm. there is still agolden opportunity for banks to re-double efforts tomatch the needs of business customers. doing so willrequire jettisoning the internal siloes and cross-selling subsidies between banking product lines,replacing them with more flexible, simply-presentedservices that meet the needs of individual businesses.

02

de-coupling over domination the reduction in scale of correspondent bankingnetworks among global banks, in step with the rapidgrowth in international transactions powered by therise of the digital economy, has widened the gap inthe provision of cross border services. As industry-wide initiatives like SwiFt gpi gather pace, and theconfidence of corporate treasurers to use non-bankpayments alternatives increases, the de-coupling ofinternational payments from previously dominantglobal providers is creating plentiful opportunitiesfor smaller institutions to fill the gap.

03Openness over obstructionmoves by regulators, and the proliferation of paymentsservices, have flattened the competitive landscape ofeuropean consumer payments. At current metrics,capturing revenues from the fastest growing area ofinternational trade – the growth in digital-onlybusinesses – is unjustifiable for many banks. the fullforce of this trend is yet to be felt among providers ofcross border banking services in the region. theresearch shows that an open approach to competition– embracing the need to work with partners to deliverthe best service to corporate customers – is aprerequisite for survival in the digital economy.

04

Re-dRawing the map

digital is shaking up the corporate treasury and with it customer expectationsfor service, speed and cost from their international payments providers.

the nature of global trade is changing. in the digital economy, the old metrics ofshipments of physical goods or export-import volumes of the world’s largestcompanies fail to capture the way that globalisation is transforming.

Already, and increasingly in the future, international trade is more complex, asdefined by the exponential growth in data traffic across borders; more global, as e-commerce platforms allow companies in emerging markets to join internationaltrade networks; and more diverse, as technology facilitates the creation of themicro-multinational, enabling even the smallest business to compete with thelargest multinational company (see table 1, Global data flows, below).

in the non-digital world things are changing too. A prolonged period of low growthacross the advanced global economy, hyper-low, even negative, interest rates and,yes, the influence of consumer Fintech innovations, have caused the businessmodel for servicing international trade networks to fall apart. in turn this is pushingup client demand for greater variety and flexibility in cross border payment optionsand causing a widespread retreat in market coverage by the global banks that oncedominated the correspondent and international banking landscape.

what’s left in their place is a fragmented map of solutions and uneven globalcoverage. this new map is made up of an assortment of mid-sized regionalbanks – usually working in tandem with the once-global correspondentinstitutions – repurposed consumer Fintech, and global remittance providerslike western union or moneyGram that have spotted an opportunity to serviceburgeoning transaction corridors, particularly between emerging markets.

SeCtiOn 1

the RiSe OF the COnneCted tReASuRY

bankingcircle.com pAGe 5

table 1: global data flows

Source: mcKinsey Global insitute, teleGeography

Intra-regional

Gigabits per second

Inter-regional

2010 2011 2012 2013 2014

15

31

23

47

33

68

49

98

71

141

bankingcircle.compAGe 6

As ireti Ogbu, managing director ofpayments and receivables at Citiremarks: “Cross border in terms ofSwiFt payments is around 40 yearsold and it’s clear that this market isripe for change. Recently there havebeen significant steps forward withthe launch of SwiFtnet, initiatives likegpi and the exploration ofincorporation of new technology andFintech partnerships into the existing SwiFt model.”

Alternative providers are doing anadequate job with faster, cheapersolutions servicing a specific paymentneed. But the market is wide open forinstitutions able to offer integratedtrade solutions that understand theneeds and complexity of the moderntreasury, while matching expectationsfor more transparent, lower cost crossborder transactions.

not digital enoughdigitisation, or rather the lack of it, is abig part of the problem. On both sides.Among the banks interviewed for thisresearch, sentiment toward the era ofdigital globalisation ranges in varyingdegrees from apprehension andcomplacency tinged with healthyrealism, all the way to an openembrace of the flatter competitivelandscape. For corporate treasurerstoo, implementing a programme todigitise the treasury and incumbentpayment processes comes burdenedby substantial potential risks, oftenwith unpredictable outcomes.

in spite of the rising digital tide andbuilding protectionist headwinds -ranging from the uK’s exit from theeuropean union to the increasedprospects of a trade war between theuS and China - internationaltransactions are growing. Additionally,despite the perceived threat, Fintechinnovation has not yet had any materialimpact on transaction bankingrevenues. in the words of marc Recker,global head of institutional marketmanagement at deutsche Bank: “we’renot complacent but to date we’ve notseen major impact from Fintechs inthe cross border payments space. this

may be due to the fact that they do notpossess the same reach and perceivedtrust. that said, we expect banks tocollaborate with Fintechs in areaswhere this results in additional valuefor clients.”

Change is not an option however.during this inter-regnum, as globaltrade transitions to digital,institutions that adapt to shiftingclient needs stand to win when themap is finally re-drawn. if they don’tadapt, there’s a real threat thatregulators will enforce change.Consumer precedents in europe havealready been set with Open Bankingand pSd2. the europeanCommission’s proposals to forcebanks to cut fees for cross bordereuro transfers from non-eurozonecountries1, in march this year, isanother step in that direction.

Connecting the treasuryRegardless of the regulators,expectations have already altered. in aglobal survey of corporate treasurerslast year, over three quarters ofcompanies of all sizes expressed astrong desire for increased automationof back office payment processes2.

many banks are already feeling theshift. Lars Sjögren, global head oftransaction banking at danske Bankpoints out, “Customer expectationsand demands for solutions on thecustomer side are increasing”, at thesame time as the bank responds to

the challenge of servicing the largestand smallest companies, as well aseverything in between.

the growth of the digital economy andthe number of digital-first businesseswill only contribute to the pressure.Slender margins on digitaltransactions, particularly for digitalassets or goods sold over e-commerce platforms, are focusing theattention of businesses on theirtransaction costs and the role thatfaster, more fluid payments play inimproving company cashflow.

while the landscape is in flux, now isthe time to take action. to respond tothe rise of the connected treasury,correspondent banks must adapt tothe changing nature of modernbusiness and global trade. to achievethis, banks should deploy a three-pronged approach, with the clientfirmly at the centre, characterised by:

• understanding that rigidity andinflexibility in payment options is athing of the past

• using technology to drive downcosts, and improve transparencyand transaction speeds

• integrating partnerships with best-in-class third party innovators torebuild trust.

CuStOmeRexpeCtAtiOnS And demAndS FORSOLutiOnS On theCuStOmeR Side ARe inCReASinG.

LaRS SjögRendAnSKe BAnK

Re-dRawing the map

bankingcircle.com pAGe 7

digital is flattening the marketplace for incumbent providers of cross borderbanking and payments services – enabling a world of more providers andgreater competition. increasingly, acceptance of an ecosystem-based approachto partnerships with third parties is essential.

it’s not all doom and gloom. in fact, for europe’s small and mid-sized institutions,insights from the interviews underline that digital globalisation could herald agolden era for smaller, regionally-focused banks.

Smaller institutions are in a strong position to win market share – particularly forbusiness from mid-sized corporates. depth of local knowledge and experience,strong customer relationships, and leaner cost structures mean they can alreadyserve and compete with the established elite of correspondent banking providers.

Across the board, despite some apprehension around the potential for increasedcompetition, interviewees are positive about the prospects for growth in theircross border transactions businesses. Rightly so. hSBC predicts that global crossborder trade volumes in goods and services will grow by a healthy 7% in 20183.

table 2: Value of cross border transactions

Source: Juniper Research

Among the banks interviewed for this research, global institutions – Citi,deutsche Bank and Standard Chartered among them – feel relatively relaxedthat their provision of hub-and-spoke style global networks will secure their rolein providing global payments transactions services for the world’s largestcompanies well into the future. the scale of the institutional framework for crossborder payments is a big part of the reason. “Around 11,000 banks areconnected via the SwiFt network, this is a big positive for the current system interms of critical mass, path to scale of new solutions, technology androbustness,” says Citi’s ms Ogbu.

2018 2022

via FinTechs

Key: ($ trillion)

FinTechGrowth:

5x Faster

Total

153%

13%

218%

29%

SeCtiOn 2

SmALLeR iS BeAutiFuL

bankingcircle.compAGe 8

the mood is optimistic at the other endof the spectrum too. Both small andmid-sized institutions reported thatthey’re benefiting from a virtuousspiral of growing transaction volumes,the partial retreat of global banks fromtheir correspondent banking networks,and the strength of their relationshipsand understanding of the needs oftheir mid-sized corporate customerbase. Geir Gunderson, vice presidentfor payments at SR Bank in norway:“Some customers previously would nothave been interested in a bank likeours. Larger banks now are focusingon larger customers and this opens awindow for mid-tier banks.”

Opening the black box So far so good. So what’s the problem?For one thing, the current scenario isunlikely to continue for very muchlonger. driving the hunt for efficiencygains and the need to root-out manualprocesses, a number of changes are onthe horizon including: rapidtechnological change across all areasof business; shifting demographics incompany size and formation (see TheRise of the Connected Treasury, above);and the growing influence of consumerFintech innovation on the company

back office – from arcane areas likeglobal custody, invoicing andreconciliation, to everyday functions likebanking and payments.

As Andrea dunlop, chief executive ofacquiring and card solutions atpaysafe Group – a paymenttechnology company facilitatingpayments for online merchants –points out, the current system is like ablack box and not fit for purpose in thedigital economy: “Currentcorrespondent banking payments areslow and not transparent. in one casea payment was refused for one of ourmerchants without explanation - itthen took thirty days to have the fundsreturned. this ends up becoming areputational issue for us, to the pointthat we sometimes have to refuse towork with some customers becauseof the banks they use.”

Secondly, even with a moderate returnto interest rate growth acrossadvanced economies, the hyper-connected world of tomorrow’s digitaleconomy – where a fledgling e-commerce trader in Lagos canconceivably compete with a Fortune500 company in new York – cannotsupport the fees and time constraints

of today’s international bankingmodel. while it’s an old adage that arising tide lifts all boats, any boatsfailing to respond to the changingcurrent, run the risk of sinking.

mcKinsey estimates that existing bankswanting to take full advantage of thedigital globalisation opportunity willneed to reduce the costs of theirtransactions businesses by up to 95%4.

SOme CuStOmeRSpReViOuSLY wOuLdnOt hAVe BeeninteReSted in A BAnKLiKe OuRS. LARGeRBAnKS nOw AReFOCuSinG On LARGeRCuStOmeRS And thiSOpenS A windOw FORmid-tieR BAnKS.

geiR gundeRSOnSR BAnK

Re-dRawing the map

bankingcircle.com pAGe 9

dramatic as that might sound, it’s notabout flicking a digital switch. Forbanks with the ambition to stay thecourse it’s as much about building aculture of incremental improvement –think the airline engine industry’spursuit of small, yearly gains inenergy efficiency – as it is aboutreplacing legacy systems withautomated, cloud-based platforms.

On your marks…while greater competition by Fintechinsurgents is uniformly anticipated bythe interviewees who took part in thisresearch, there is also consensus thatthere is still time to adapt, and thatthe standardisation provided by theSwiFt platform remains a keycomponent for cross borderpayments. As michal přikryl, head ofcorporate cash management at CeskaSporitelna in the Czech Republic says,“network scale is important in globalpayments. in the payments businessyou need to have size. And SwiFt isstill the biggest. there’s a very longway to go before that changes.”

in answer to this, SwiFt’s Globalpayments innovation initiative (gpi) isaiming to solve the challenges facedby correspondent banks with a faster,cloud-based alternative that offersmuch greater transparency andmessaging capacity than its existingrails. “Old correspondent banking is

really a child of the 1980’s. it’s notvery transparent but it’s done its joband it’s still the mainstay of globaltrade. what we’ve done with gpi is toapply a cloud-based approach thatenables any bank to see where apayment is at a particular moment,speed up the payment chainsignificantly and give thetransparency required for the modernworld” says harry newman, SwiFt’shead of banking.

Adoption is at an early stage, currentlyaccounting for around 10% of SwiFt’scross border traffic, and it’s still tooearly to say if the type of one-size-fits-all standardisation offered by gpi offersthe flexibility needed by the more fluiddigital economy. while some banks viewit as a solution to their problems, othersanticipate that only larger institutionswill have use for the service.

trading standardsAlthough scale and standards willremain key attributes for global trade,flexibility is likely to be as important inthe future. with the exception of largetrade corridors – like those betweenthe uS and China, or China and LatinAmerica or Africa – global trade, bothphysical and digital, is still definedalong regional lines5. when measuredby imports and exports, most nations’biggest trading partners are theirneighbouring countries and regions.

AROund 11,000 BAnKS ARe COnneCted ViA theSwiFt netwORK. thiS iS A BiG pOSitiVe FOR theCuRRent SYStem in teRmS OF CRitiCAL mASS,pAth tO SCALe OF new SOLutiOnS, teChnOLOGYAnd ROBuStneSS.

iReti SamueL-OgBuCiti

bankingcircle.compAGe 10

in which case, a single global system for cross border payments is perhapsless useful than it sounds. Banks increasingly need to think of the range oftransactions that facilitate cross border trade as a continuum, catering tospecific needs determined by use and the type of customer (see diagram, Thecross border continuum, on page 10). to some degree this is happeningalready. Santander’s partnership announcement with Ripple in march 2018 isone sign of a growing trend in offering different solutions to match differingcustomer needs6.

Across Scandinavia, a long-established tradition of intra-regional coordinationin trade and finance might be a bellwether for how regional bank clustershandle cross border transactions in the future. the region’s largest banks arecurrently working on a new solution for cross border payments, says halvorLande, head of digitalisation and innovation at dnB: “the region’s largest banksare currently exploring a new common payment infrastructure for bothdomestic and cross border payments within the nordics. it will in essence bethe first truly real-time payment system, spanning different countries andmultiple currencies”.

For the moment, global trade continues to be dominated by large institutions,complemented by regional hubs. As the digital economy expands however,smaller banks that can seize the opportunity to fill gaps in provision should bepoised for success as the shake-out continues.

bankingcircle.com pAGe 11

Re-dRawing the map

the growth in digital business and Fintech is re-writing traditional definitions ofcross border transactions and creating new opportunities across the value chain

table 3: the cross border continuum

NEW ENTRANTSNEW ENTRANTS

PARTNERSHIPS

TRADE PLATFORMS

IN-HOUSE BANKS

INDIVIDUALS & CONSUMERS

SMALLBUSINESS

MID-SIZEDCOMPANIES ENTERPRISE

Source: magnaCarta Communications 2018

traditionalcross borderpayments

new modelcross borderpayments

bankingcircle.compAGe 12

the connected, always-on nature ofdigital commerce is blurring the linesbetween traditionally differentservices for international trade – fromsupply chain to trade finance, bankingand payments. For many commercialcustomers, the distinctions areprobably already irrelevant.

‘how do you un-silo a silo?’ mightsound like the opening of a bad, popularjoke, but it’s a question currently doingthe rounds up, down and across thebanking industry. Just asking it revealsthe extent of the problem facing banks. nowhere more so than incorrespondent banking – often viewedfrom the outside as an obscure set ofproducts for large companies,underpinned by opaque charges andcloudy commission structures.

it’s unsurprising then that anticipatedcompetition from Fintech insurgentsis taken seriously amongst theinterviewees for this research.unfortunately, the answer to thequestion is not nearly as funny as thejoke might have been. the move fromvertically-separated business lines toa horizontal service-oriented model isno laughing matter. And neitherstraightforward, nor swift.

in a world where what matters tocorporate customers is smoothness– of integration; efficiency – ofpayment processes; and speed,banks that want to win will need topivot business in their direction, and

away from a complex web of feesand internal cross-selling subsidies.As SwiFt’s mr newman says, “thetime it takes to get from bank A tobank B is not important – whatmatters is how long it takes to get tothe end client.”

encouragingly, among the banksinterviewed, many are gearing up for thechallenge. Standard Chartered, aeuropean bank uniquely exposed to thechanging currents of cross bordertransactions between emerging markets,is piloting multi-party solutions to solveentrenched problems for specific clients.the bank is currently working on asolution that involves working with atrade platform provider and a globalinsurer for a common customer.

One size doesn’t fit allmichael Vrontamitis, head of trade foreurope and Americas at StandardChartered explains: “we have a simplestrategy for banking the ecosystem –not just the large anchors [in keyhubs] but also their suppliers andbuyers. we need to get to know andunderstand Smes in thesemarketplaces, and help them get thebenefit of that service, as well asother services, such as supply chainfinance or credit management.”

Once again, smaller institutions withtheir leaner cost structures, and closercustomer ties stand to benefit the mostfrom the industry-wide pivot in the

years ahead. Canadian regional lender,AtB Financial has created what it calls‘the Stadium’ – a multi-tasking backoffice to help the bank design andimplement improvements in productsand processes, supported by cuttingedge data science and analytics.

CivilisedBank a uK-based challengerbank focussing on small and mid-sized companies is aiming to blend

SeCtiOn 3

BLuRRed LineS

we hAVe A SimpLeStRAteGY FORBAnKinG theeCOSYStem – nOtJuSt the LARGeAnChORS [in KeYhuBS] But ALSO theiRSuppLieRS AndBuYeRS. we need tOGet tO KnOw AndundeRStAnd Smes intheSe mARKetpLACeS,And heLp them Getthe BeneFit OF thAt SeRViCe.

miChaeL VROntamitiSStAndARd ChARteRed

bankingcircle.com pAGe 13

Re-dRawing the map

technological efficiencies with arelationship-centred approach toserving customers, “Our local bankerswill on-board relationship-managedcustomers in person. they will alsostructure loans to suit the individualcustomer business. we’re innovatingthrough our business model and ourservice delivery – the technology isjust an enabler,” says will Beeson, thecompany’s head of new propositions.

data, and the ability to manipulateand analyse it uniformly across theenterprise, is the biggest obstacle tosplitting the silos that still existacross banking. AtB Financial claimsto be unique among Canadian bankswith a data architecture that gives itthe fabled single customer view.mariia Khriachtcheva, director ofdigital payments at AtB, explains:“every conversation we have[internally] ends up with ‘give me thedata!’ data is the core component ofevery decision, in terms of priorities,the solutions, even what the problemis. Our strategic focus this year will beon building tools to make sure thedata is easily accessible.”

trading platformsOther banks, such as regionally-focussed institutions dnB and danskein Scandinavia, and Bnp paribas acrossemeA are exploring the use ofplatforms to ease the pain, and friction,of cross border transactions forcommercial customers by acting as

gateways to third-party solutions. “wehave to make sure that we think aboutthe client experience and not in silos,with the capacity to make use of best-of-breed solutions by providingconnectivity to our platforms to thirdparties,” says wim Grosemans, head ofproduct management, payments andreceivables at Bnp paribas.

Similar to consumer payments, wherethe disappearing transaction isalready an important theme (thinkuber or Airbnb), the naturaldestination for some industries, andlarge companies, will be a growingappetite for the absorption of specificbatches of financial services into thecorporate treasury, and growingnumbers of in-house banks.

there are already some examples ofhow things will look in future. uSA-basedtaulia has created a trade and supplychain platform that counts globalautomotive, pharma and retailbusinesses among its customers7.

Among banks interviewed for thisresearch, danske Bank has partneredwith the maersk shipping and logisticsconglomerate to build a global business-to-business payments platform. CalledGatetu, it is expected to launch in europethis year. “if you partner with someonefrom a totally different industry you canbring reach on a global level – those arethe most interesting areas,” saysdanske’s mr Sjögren.

there are many moving parts toconsider as the industry-wide pivotmoves into the next phase. in response,the insights from the research suggesta four-step approach to replacingcorrespondent banking silos ready fora digital future:

eVeRY COnVeRSAtiOn we hAVe [inteRnALLY] endS up with ‘GiVe me the dAtA!’ –dAtA iS the CORe COmpOnent OF eVeRY deCiSiOn, in teRmS OF pRiORitieS, theSOLutiOnS, eVen whAt the pROBLem iS. OuR StRAteGiC FOCuS thiS YeAR wiLL Be On BuiLdinG tOOLS tO mAKe SuRe the dAtA iS eASiLY ACCeSSiBLe.

maRiia KhRiaChtCheVaAtB FinAnCiAL

Re-direct frontline, customer-facing staff to solve cross-functional client challenges

01

identify needs and emergingsynergies for customers andtransaction corridors

02

extract and integrate data across correspondent bankingbusiness lines

03

empower teams with data andanalytics tools to improve dataaccess and analysis

04

bankingcircle.compAGe 14

As the map is re-drawn there’s everything to play for – for large and smallerinstitutions alike. the winners will be those that can embrace a digital mind-set andpartner with financial utilities to deliver the best solutions for their customers.

despite some obvious clouds, the research shows a clear path for banks tonavigate in order to play a pivotal role in global cross border trade in the future.Representing less than 8% of global cross border transaction values in 20178,Fintechs have only modestly dented the dominance of traditional banks in crossborder flows. So far.

without a holistic response, the relatively protected position of incumbent banksis likely to be temporary. the value of international payments carried out byFintechs is forecast to more than double in the next five years – over three timesfaster than the anticipated rate of growth for the cross border transfer marketas a whole.

A unique ability to combine an easy, transparent customer experience at low costwill mean some Fintechs will also be able to mop up banking revenues fromadjacent service lines. this will particularly be the case as the digital economyincreases demand for synergies across the treasury and trade supply chain.

As Rastislav Vallo, head of payment cards at tatra Bank explains in his view ofthe challenge facing banks, “it’s really about a different approach, Fintech isteaching us this rule: take it or leave it. And make it quick. in the end thecustomer should be the winner.”

universally among the banks that participated in this research, correspondentbanking and its potential to strengthen ties with high-value commercial customers,as well as provide adjacent services, is acknowledged as a strategic asset worthdefending. it’s easy to understand why. Sales from cross border payments representa larger share of europe’s bank revenues than other regions (nearly double theproportion of banks in Asia or north America9), and upwards of 5% of bank profitsfrom direct sales among interviewees.

Based on the industry’s current economics however, the fastest growing area ofinternational commerce – the exponential growth in data traffic and digital flowsbetween citizens, markets and countries – is well beyond reach. in a survey, 86%of technology start-up businesses reported some form of cross border activity10.if banks can’t afford to service a new breed of micro-multinationals, otherorganisations, borne out of the digital economy will.

SeCtiOn 4

the eARLY YeARS

it’S ReALLY ABOut AdiFFeRent AppROACh,FinteCh iS teAChinGuS thiS RuLe: tAKe itOR LeAVe it. And mAKeit quiCK. in the endthe CuStOmeR ShOuLdBe the winneR.

RaStiSLaV VaLLOtAtRA BAnK

bankingcircle.com pAGe 15

1Finextra, 28 march 2018, accessed at: https://www.finextra.com/newsarticle/31889/ec-proposes-cheaper-euro-transfers-across-eu?utm_medium=newsflash&utm_source=2018-3-28&member=695422CFO payment pulse Survey, magnaCarta and ixaris, October 20173trade navigator – now, next and how for business, march 2018, hSBC4Global payments 2016: Strong Fundamentals despite uncertain times, mcKinsey & Company, September 20165digital Globalisation: the new era of global flows, mcKinsey & Company, march 20166pymnts.com, 26 march 2018, accessed at: https://www.pymnts.com/news/payment-methods/2018/santander-launch-cross-border-money-transfer-app-ripple-blockchain7taulia: https://taulia.com/en/customers8why is there big money in B2B transfers? Juniper Research, march 20189Global payments map, mcKinsey & Company, 2016,

Accessed at: http://www.mckinseypanorama.com/products-services/global-payments-map.aspx 10digital globalization: the new era of global flows, mcKinsey & Company, February 201611ibid. mcKinsey & Company, February 2016

COnCLuSiOn

while the handover, from the analogueeconomy of the twentieth century to the digitalworld of the twenty-first, plays out, banks stillhave the upper hand. For how much longer willdepend largely on their ability to respondacross three core areas:

partnersworking with partners to re-define service lines and strengthen customer ties

peopleBuilding a culture that prioritises solutions and flexibility to replace sales of rigid product lines

platformsBuilding scalable technology platforms to provide relevant, best-of-breed products

despite the considerable energy the average bank willneed to expend to win at the new frontier of internationaltrade, it’s a battle worth fighting. mcKinsey estimates thatdata flows contributed close to 4% to global Gdp in 2014alone11. But the battle can’t be won in isolation.

encouragingly, the rising digital tide is alreadyincentivising many banks to move in this direction.embracing the concept of open competition andaccepting the need to work with partners. in the words ofmr Grosemans at Bnp paribas, “it’s good that newplayers push us to question client experience. there’slots of reasons to do this. if Fintechs are doing thingsbetter than us – let’s integrate, let’s work differently.”

there’s still everything to play for during this inter-regnum, as the research identifies. however, the onlybanks reaping the digital dividend will be those thatmatch a commitment to excellence (from the customer’sviewpoint) with the openness to disrupt internally (evenat the risk of eroding traditional revenues), and theboldness to knock down legacy walls, as they integratedata and analytics to discover unmet needs.

Re-dRawing the map

Source References

the netwORK FOR GLOBAL COmmeRCe bankingcircle.com

ABOut the AuthORS

Saxo payments Banking Circle

Saxo payments Banking Circle is a global scale financial utility that givesfinancial institutions the ability to enhance their customer proposition.

By leading the rise of a super-correspondent banking network, Banking Circle ishelping Fintechs and banks to provide their customers with faster and cheapercross border banking solutions, without the need to build their owninfrastructure and correspondent banking partner network. As such, BankingCircle is empowering these financial institutions to support their customers’international trading ambitions, without the need for multiple bankingrelationships, whilst reducing risk and the operational cost of transactions. Andthat is enabling them to remain competitive.

the world of banking and payments is at a turning point. And the winners in thischanging world will be those organisations that recognise the importance ofplaying to their own strengths; building alliances with strong partners whocomplement their own customer proposition.

www.bankingcircle.com

magnaCarta Communications

magnaCarta is the specialist communications, pR, research and marketingconsultancy for the fluid and fast-changing world of global payments andfinancial technology. Our research and reports are available at:

www.magnacartacomms.com

Re-dRawing the map