payments are complex because national payments systems do not support, as a
general rule, direct participation by banks in other countries. Therefore,
every non-cash cross-border transaction must be handled through international
correspondent banking networks in one manner or another. If the end parties are
dealing directly with their banks, they use the international correspondent
Most of the world’s major
banks maintain correspondent banking relationships with local banks in each of
the important foreign cities of the world. This two-way link between banks is
one of many interbank relationships, such as nostro/vostro accounts and the
selling of cash management and treasury services to other financial
institutions. SWIFT plays
an important role in the messaging between Correspondent Bank A and Bank B.
SWIFT is a standard messaging system that banks across the globe use to
communicate regarding a certain type of transaction.
International Correspondent Banking: There are great
advantages to users of the current system of international correspondent
banking. As virtually all banks participate in some manner, it is global by definition,
broadly understood within the banking industry, and comprehensive in its reach.
Such a decentralized, non-standardized approach has inherent problems,
however—problems that can cause pain for some corporate and retail customers. The pain points
under this system are: 1. No
direct relationship with downstream banks and thus resolution in case of any
issue is not done quickly and reliably.2. High
Cost : Participation of multiple intermediaries lead to a huge cost to the end
data transport capabilities along with the transaction data to the receiving
party 4. Barriers
to change: Difficult to implement change in a decentralized system at a
Corresponding bank level.