We are living in uncertain times but one thing we can be sure of as we look ahead in 2017 – that the changes we have seen emerging over the past year will accelerate in the coming 12 months.
All the indicators tell me that the coming year will bring us more new developments, many of which will change the way we interact with clients. One aspect that will surely gather momentum is the continued move away from the old correspondent banking model.
There are many reasons why correspondent banking, in its old form, will be consigned to history, but most concern economics and efficiency. Furthermore, regulation continues to have a big impact on the financial markets, including cross-border payments. In fact, the tightening regulation around capital adequacy brought about by Basel III will focus banks on the problem of the correspondent banking system, namely capacity around liquidity positions, uncertainties around settlement time and a lack of predictability with regards to fees and charges.
Against this backdrop, banks will remain focused on de-risking, reducing their global footprint as they go in search cost reductions. This causes some pain, but it will also create opportunities for other institutions.
At the root of our industry is the pursuit of better, faster and more dynamic technology – such as distributed ledger-driven innovations. Everybody wants more speed, greater efficiency and enhanced visibility to capitalise on the exponential growth of cross-border payments.
And, importantly, the industry now recognises that change is irreversible and that customers want to know who will provide the services they are demanding. This year, we have certainly seen a shift in the type of conversation we are having with banks, which demonstrates the pace of change and heightened client inquisitiveness.
Today, it is widely acknowledged that a new breed of payment provider can deliver a higher level of client satisfaction. While banks are concerned with their own problems and the transition towards digitalisation, companies like Earthport can come to the fore. This is a win-win situation for customers, as more competition invariably results in higher levels of motivation and innovation among providers.
I foresee banks assessing what they want to do and what they can realistically continue to do in the future. They will seek to concentrate their efforts on recurring transactional business, which bodes well for the role played by transaction banking. Banks will be less reliant on risk-based business.
They may also step up their efforts to partner with other firms in areas of the payments industry that are no longer viable as standalone operations, such as low value cross-border payments.
In 12 months’ time, I don’t envisage that we’ll be talking about distributed ledger technology and blockchain as something for the future. The technology may still be in its infancy but is gaining momentum and is being used in real-world situations – including cross-border payments (and the first distributed ledger-enabled P2P wallet).
This is a perfect example of bank-FinTech collaboration in order to solve a problem for the benefit of the customer and if anything, it is the ethos that will shape the narrative of 2017.
But the recent past underlines that predicting the future is a hazardous occupation, so I will end with a caveat – expect the unexpected in 2017!