Correspondent banks raise costs in cross-border payments

Inefficiencies in cost, speed, and data standards hinder global payment processes.

Global corporations transfer nearly $23.5 trillion across borders annually, but the process remains fraught with inefficiencies, particularly in cost, speed, and transparency. According to Micheal Ho, Partner and Head of Corporate and Transaction Banking Asia Pacific at Oliver Wyman, the reliance on correspondent banks is a key factor driving up costs.

“You need a long chain of correspondent banks relaying messages bilaterally for the money to arrive at the destination account,” said Ho during Sibos 2024 in Beijing. “Every bank that touches the payment has costs and needs to add fees to it.”

Ho also pointed to another critical issue: the lack of standardised data across banks. “A lot of the challenges come from not having the right data standard for banks to work together to resolve problems,” he explained.

Payment errors, such as compliance flags or fraud alerts, require banks to communicate through multiple intermediaries, adding delays and further complicating the resolution process.