BIS: decline in correspondent banking pushing people to use cryptocurrencies

Yesterday the Bank of International Settlements (BIS) which is owned by sixty central banks, published a report into correspondent banking relationships used for cross border payments. Over the past seven years, correspondent banking relationships have declined by almost 20%. Benoît Cœuré, chairman of the Committee on Payments and Market Infrastructures, noted that this “may push people to use ‘shadow’ payment services such as cryptocurrencies”. Typically in correspondent banking, to make cross border payments, a bank will establish accounts at other banks in numerous jurisdictions. The downside is it ties up funds and is an administrative burden. For those jurisdictions where it doesn’t have a banking relationship, payments will be routed via another bank. Despite the decline in the number of banking relationships, over the same seven year period transaction volumes have increased by close to 40%. Hence there’s been a concentration of transactions across fewer channels. One possible explanation for this is the rise of companies such as Earthport and Transfast, both recently acquired by Visa and Mastercard respectively.

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