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Correspondent banking trends and developments in 2019

6 November 2020

Correspondent banking continues to represent an important link in the payment chain with a total average daily turnover of €686 billion, according to the Eleventh survey on correspondent banking in euro, 2019. Since 1999, the Eurosystem has conducted surveys to monitor the development and relevance of the business and ensure the smooth functioning of payment systems. Correspondent banking enables banks to access financial services in different jurisdictions and provide cross-border payment services.

The findings from the 2019 survey show a decrease in the average size of transactions processed compared to the previous 2016 survey. The decrease in the average transaction size is reflected in a 37% increase in the average daily volume and a 22% decrease in the average daily value of transactions. The most frequently cited reasons for the decline in turnover as well as in the number of banks that are using correspondent banking services are increasing regulatory requirements related to anti-money laundering and combating the financing of terrorism (AML/CFT), including know your customer (KYC) procedures.

For the first time, the 2019 survey includes information about the location of the originators and beneficiaries in correspondent transactions. The survey’s responses indicate that one-third of the transactions in euro by value occurred within the euro area. This mainly consisted in providing the originator bank with indirect access to payment systems. The majority of payments sent via correspondent banking are settled through the TARGET2 and EURO1 payment systems.

The correspondent banking business remains highly concentrated, but has ceased to concentrate further. A closer look at correspondent banking chains shows that banks try to minimise the length of those chains. The largest service-providing banks are benefiting from the establishment of direct relationships and are specialising in cross-border activity, while smaller banks are reducing their business.

Looking ahead, many of the surveyed banks expect an increase in correspondent banking activities over the medium term, as major advances are underway. However, they also recognise the presence of a number of factors which are increasing uncertainty about the future of the business.