The number of correspondent banks has declined so rapidly over the last 4-5 years that the IMF and the BIS have become concerned. Although it is generally accepted that, “No banks are truly global – all form partnerships to deliver local services to corporates” (Standard Chartered’s Byron Joey Gardiner and Lee in TMI in January 2018). But the number of correspondent banks decreases each year, eventhough it is now well understood what really works in partner banking.
Quality of ICM solutions
In 2013 CTMfile wrote that “Banks put together ICM solutions using EB services and support, own branch services, partner bank services, payment and collection services, liquidity management services, and customer support. The quality of the overall ICM solution is determined by how well these components are integrated and delivered.” We highlighted the variation in quality in this figure:
Standard Chartered believe that today there are two main types of alliance model:
- Direct model, host-to-host connected and process integrated
- Indirect model, host-to-host connected and platform interfaced.
But a new form of ecosystem e-commerce is emerging that could change the landscape of ICM solutions dramatically.
The new ecosystem e-commerce platform that Alibaba has built in which, according to Chris Skinner:
- Alipay “monitors every transaction from its 450 million users, in real-time with artificial intelligence monitors constantly searching for potentially fraudulent transactions“ (Target is two billions users by 2025.)
- Alipay “moved from basic escrow services to real-time payments to cloud to microservices, and are now working on their new machine learning and super intelligent structure. A structure that can process 250,000 transactions per second today, and is architecting systems that will scale to over 100 billion transactions per day.” (Visa and MasterCard handle just over 60 billion transactions per year combined, and average near 2,000 transactions per second.)
- Ant Financial is already the biggest money market fund in the world. It is a very different fund: “It is a method for consumers to store a balance to spend on Taobao, and get some interest. Alternatively, it’s a micro savings tool in a mobile wallet that gives rural Chinese consumers a place to save their yuan. Most of these Chinese citizens had nowhere to store money before, as there were no banks in the village.”
This platform provides the launchpad for a new form of e-commerce and correspondent banking in which all the linkages and parternering is provided by ecommerce network, e.g. they will have Nostro accounts at all the banks, the payment routing could be via the network, etc.
A very small but important example of how the network can own and manage the Nostro accounts is how BELLIN provide their Virtual Network bank solution.
CTMfile take: E-commerce ecosystems will be an important part of banking’s future. But how can corporates exploit their potential to provide better, simpler services?
Few e-Integrated Partner Banking arrangements at present and significant regional variations
e-Integrated Partner Bank arrangements are much more difficult to put in place, taking significantly more time and resources.
How Global Banks’ ICM solutions partner banking mix varies
Global network banks have very different strategies for delivering their ICM solutions
Bank ICM delivery solutions are adjusting fast. Time for new partner banking?
Corporates are being forced to re-configure ICM structures as banks adjust their coverage and commitment to the transaction banking business. How should corporates react?