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Correspondent-Banking-as-a-Service is Carving a New Path Forward for MSBs

Correspondent-Banking-as-a-Service is Carving a New Path Forward for MSBs
by Ray Moledina on

Insight

Money Services Businesses (MSBs) play a vital role in providing financial services to corporate and private clientele. They thrive on being able to better service and often better price the foreign exchange and cross-border payment needs of their clients as compared to traditional banks. In servicing such a specific product niche, some successful MSBs have taken material strides to further differentiate their offering by aligning their core business to include sophisticated technology-centric products and services. Two important trends have been gaining momentum in recent years. First, many MSBs have succeeded in pioneering various cutting-edge verticals and are evolving into fintechs. This has resulted in expansive industry growth. Second, banking MSBs is not as evasive as it once was. With the right mix of enterprise-grade regulatory technology, proven reliable compliance framework and discernible internal and external oversight, MSBs can win bank relationships and trust. Alongside these trends of growth and high-grade compliance standards in the industry, third-party payment firms (generally non-banks) have also advanced and matured their compliance processes and oversight and are willing to engage MSBs and 3rd party payment flows.

Challenges faced by MSBs

While MSBs are flourishing, engaging new banks is no less onerous with the extreme level of due diligence and continual costs involved in maintaining typical correspondent banking relationships.  Arguably, it is more arduous for MSBs to attain banking partners given the historic perception of the industry and risk surrounding third-party payments. As the MSB industry continues to innovate, the growth momentum naturally comes with end-consumer demands for access to a wider geographic reach, specific currency pairs or in-country settlements like BSB, SEPA or other international ACH (‘IACH’) rails. Growing MSBs have had to endure the painstaking process and costs of maintaining multiple banking partner relationships to meet these broadening end-consumer requirements.

How correspondent-banking-as-a-service can help

Addressing the need for better access, many leading payment firms have matured their product set, technology and risk mitigation to offer ‘correspondent-banking-as-a-service’ to MSBs, banks and fintechs. These firms have successfully proven that they can often outdo traditional banks in delivering cross-border payments by way of geographic reach, technology and service. Particularly for MSBs, these payment firms are very capable of managing the risks associated with third party cross-border payments and are willing to engage, subject to a sufficient compliance regime that is in good standing.

This does not necessarily mean that MSBs are in a position that they can or should replace their primary banking partners. Instead, correspondent-banking-as-a-service is an immediate strategy for MSBs to augment their primary banking infrastructure with sophisticated world-class payments partners that specialize in international payments. For some MSBs, this means they can access more currency pairs and better settlement rails with ease. For all MSBs, the automation that correspondent-banking-as-a-service delivers is of material value.

Benefits of correspondent-banking-as-a-service:

  • Live FX pricing
  • Auto-execution of FX transactions 24x5
  • Straight-through-processing of payments via API connectivity
  • Access to traditional payment rails
  • Access to in-country settlements in select countries
  • Access to exotic currency pairs
  • Expansion to other jurisdictions by leveraging the partner/agency licensing framework of established payment firms
  • Incoming FX flows including virtual IBANs and virtual named accounts

Introducing correspondent-banking-as-a-service by Datasoft

Datasoft, a leading provider of foreign exchange and international payments software solutions, has incorporated correspondent-banking-as-a-service into its core platform.

For more information visit www.datasoft.global