Local banks, including regional banks and credit unions, face multiple challenges related to cross-border payments. They often lean on third parties, such as correspondent banks or other payment service providers, to carry out global payments, which can increase costs, slow settlement times, and introduce additional points of failure.
As the financial landscape becomes increasingly more global and complex, it’s crucial that banks can resolve these common cross-border payment problems while strengthening their reputation and supporting growth. Let’s take a look at some of these challenges and how integrating an alternative payments solution that meets modern business needs can help solve them.
1. High Costs
Maintaining correspondent banking relationships can be costly due to payment processing fees, foreign exchange (FX) markups, and locking capital in destination accounts to help fund global transactions. Many smaller banks are also surprised to encounter hidden fees only after the payment is initiated, for example from third party providers for cross-border payments.
Due to the transparent nature of blockchain technology, a blockchain-powered payments solution like Ripple Payments has no hidden fees and gives customers full visibility into costs with clear, up-front price quotes that are provided before the payment is initiated. Blockchain also enables full end-to-end transaction tracking, from the time a payment is initiated to when it’s settled, so banks and their customers don’t need to guess when payment will arrive.
2. Service Quality and Reliability
Dependence on correspondent banks means that smaller banks are often at the mercy of their correspondents’ service levels and reliability — including long settlement times and poor payment transparency. This can vary widely and negatively affect a bank’s operations and customer satisfaction, leaving both in the dark until a payment either settles or fails.
With a fully transparent payment tracker and transactions that settle in seconds, customers can access near real-time global payments outside of traditional banking hours — including weekends and holidays.
3. Limited Access to Services
Larger institutions face their own regulatory and cost pressures, and may limit the number of correspondent relationships they maintain or the number of countries they send to. This can leave smaller banks without access to the markets and services that are critical to their business, stifling growth and expansion.
Through a single integration, Ripple Payments customers can connect to a global payments network and access new cutting-edge features for faster, more affordable and more transparent cross-border payments as they become available—all with dedicated account support.
4. Risk and Compliance Management
Smaller banks may face difficulties assessing and managing the risks associated with correspondent banking, including credit risk, operational risk, compliance risk, and FX risk. And managing foreign exchange risk is more challenging without a dedicated team to utilize sophisticated hedging tools, which are often more accessible to larger institutions.
Ripple’s payment engine is fully compliant and secure—ensuring customers can safely transact across borders. With Ripple, FX rates are locked in when you accept a payment quote and initiate the transaction.
5. Technological Barriers
Traditional cross-border payment providers require a certain level of technological infrastructure. But smaller banks that cannot meet requirements—often due to lack of technical resources or use of multiple third party platforms that don’t integrate with one another—are left in the lurch. The more parties or platform handoffs involved in a transaction, the more potential points of failure. Using legacy payment systems only adds to the complexity in the form of payments that can take days or even weeks to settle, with little visibility into where that payment is throughout the transaction. This results in local banks suffering from slower processing times and high error rates.
Ripple Home is the simple user interface, available to Ripple Payments customers via a browser plugin. It requires no technical investment and funds can be sent in a few clicks simply by logging in and initiating payment. For those that prefer a technical integration, the Ripple Payments API is simple and easy to use.
6. Liquidity Management
Maintaining adequate liquidity to meet international payment obligations can be challenging for smaller banks. To make matters even more complex, local banks are also tasked with managing multiple currencies and their fluctuating exchange rates across different markets.
Ripple Payments removes the need to manage currencies across multiple correspondent bank accounts. XRP and other digital assets used in the payment flow serve as bridge currencies to last-mile fiat payouts, which frees up liquidity for customers to use in other areas of the business.
In today’s financial landscape, businesses are eager for a fast, simple, secure cross-border payment experience. It’s imperative for local banks to meet this demand now in order to retain customers and gain back market share. Ripple Payments offers smaller banks a fully compliant, radically transparent alternative to the correspondent banking system.
Contact us today to learn more about how Ripple can help your bank offer better global payments to your customers.
