Future-proof cross-border banking

COVID-19 has caused financial institutions to rapidly accelerate their digitalisation strategies. Anders la Cour of Banking Circle unveils the vital role of digital financial infrastructure in rebuilding international banking to stand firm in an uncertain and unpredictable future

COVID-19 has caused financial institutions to rapidly accelerate their digitalisation strategies. This article touches upon the vital role of digital financial infrastructure in rebuilding international banking to stand firm in an uncertain and unpredictable future.

Even before the pandemic plunged businesses of all types into unprecedented crisis-mode, banks had been changing. In order to create more responsive and flexible businesses that centre around customers’ requirements and experience, banks have been working to change their business practices, their culture, and – most of all – their technology. 

The banking industry has been tech-heavy for generations, but its technology has not always served it well. The monolithic systems and in-house servers on which banks are built have held them back from competing with the agility of new entrants, so they have not kept up with the pace of change in other industries. The once-pioneering systems pose a significant challenge for banks deploying new software and applying best practices, especially when it comes to cross-border transactions. And that’s before you factor in a global pandemic. 

In March 2020, Banking Circle carried out a study into how financial institutions in Europe were developing digital strategies. When this study was initially planned, the term ‘COVID-19’ didn’t yet exist, so no one could have predicted that the timing would allow us to gain such a unique and valuable snapshot into business confidence.

Of course, by the time the study commenced, our respondents and interviewees were staring into a pandemic that was gradually shutting down nations and industries. 

Our survey and interviews involved senior executives from a range of financial institutions across Europe. Encouragingly, and rather surprising in the circumstances, feedback showed industry-wide optimism for the future – a substantially different picture from a decade ago when the world was in the midst of a very different global financial crisis. 

The most confident banks we spoke to were those that have already made heavy investments in their tech stack or re-aligned their financial infrastructure to use third-party services in response to changing demand. Less than a third of financial institutions are now concerned about the pace of technological change in banking – dropping to one in six among commercial banks. 

90% of institutions reported that they are building technology design and architecture into their business planning. 80% of retail banks and 74% of commercial banks have already worked with infrastructure providers. 

The cross-border conundrum 

One area in which incumbent banks struggle to compete with fintechs is international transactions. Using the correspondent banking network, cross-border payments are slow and expensive.

In a competitive, fast-paced, digital, and international market, the delays in cash flow and the high cost of cross-border transfers waste resources and limit growth. With businesses around the world currently operating on tighter margins and often with a smaller workforce, they cannot afford to waste that time or money. 

Resolving these challenges has been on banks’ agendas for some time, but COVID-19-induced pressure has quickly pushed the issue higher up the list. Financial infrastructure providers are delivering new technological solutions that play an increasingly vital part in the financial ecosystem, assisting banks and payment businesses in improving cross-border payments for their clients, helping them to access new opportunities and get back to profitable growth. 

Financial infrastructure providers like Banking Circle are focused on developing the technology to process payments directly and to integrate with a vast network of local clearing and payments schemes. Using decoupled architecture, infrastructure providers can easily update or replace individual pieces of architecture with limited impact on the rest – meaning they can quickly add more functionality and work within new geographies without delays caused by setting up new banking relationships in each new region. 

This means they are uniquely placed to give banks and payment businesses the ability to provide their customers with faster and cheaper cross-border banking solutions – all without the need for them to build their own infrastructure or correspondent banking partner network or to wait for different national payment systems to be joined up.

Post-pandemic global banking 

2020 has not provided the clarity it seemed to promise, with its connotations of clear vision and perfect eyesight. The rapidly changing landscape and the widespread uncertainty have clouded our view of the future. However, it is exciting and encouraging to see the increasing recognition of the value and potential of digital. Survey respondents and interviewees confirmed that the businesses they represented did already have in place plans to digitise more processes. However, many shared that these plans had to be fast-tracked due to the crisis, demonstrating the need for organisations to be adaptable, agile, and prepared. COVID-19 has certainly proved to be an accelerator for change. 

As the world makes its way out of the pandemic and crisis mode, banks must take time to understand the future, using the lessons of the past – including those learned during this pandemic – to determine longer-term thinking around the collaboration and the infrastructure that enable success. In the process, everyone can regain the clarity and confidence that 2020 originally offered and see it as a time that lays the foundations for a bold, new, collaborative, accessible, and future-proofed financial ecosystem. 

Banking Circle has published the results of its study in a series of three white papers, which are available to download here.

This editorial was first published in our Cross-Border Payments and Ecommerce Report 2020–2021, which assesses the change of pace that occurred in 2020 and provides a comprehensive overview of the major trends driving growth in this space, being the ultimate source of information for players interested in selling across borders. 

About Anders la Cour

Anders la Cour used his experience in legal M&A venture capital and strong commercial acumen to co-found Banking Circle in 2013. In 2018 he orchestrated a USD 300 million management buy-out with EQT and secured a banking licence in 2020. Anders is the inaugural Chair of the Emerging Payments Association EU, having been on the EPA Advisory board since 2016. He is regularly invited to speak and present at industry events around the world, has won multiple awards, and had thought leadership articles published in a range of industry publications. 

About Banking Circle

Next-generation provider of mission-critical banking infrastructure, Banking Circle is leading the rise of a super-correspondent banking network. Banking Circle is a fully licenced bank able to deliver compliant and secure financial infrastructure at a low cost. Clients, including banks and payments businesses, can now access real-time payments regardless of borders and regardless of size, allowing them to seize market opportunities without having to commit to significant investment in their own internal infrastructure.