I recall with pride the ‘commencement’ of my banking career as an apprentice under the legendary Indian Foreign Exchange Banker Mr. Anthony Silveira in the correspondent banking section attached to the International Division of my former bank in 1970s. It was indeed a great learning ground and therefore a very good beginning for me.
Being an Indian bank with overseas aspirations in its genes, my bank was committed to international banking operations right from the beginning. It may be news to many that this bank commenced its domestic and overseas operations on the same day in 1930s! Hence correspondent banking was a very important function for the bank. The bank truly boasted its vast net work of correspondent banks all over the world.
Well. Continuing with my nostalgic memories, I remember Chase Manhattan Bank, ITC New York, Bank of California, Midland Bank, Commerz Bank, to name a few, were very active in correspondent banking area in the Indian sub-continent. I also recall how Chase had to explain on a few occasions its stand on certain burning issues then in Indian sub-continent to our senior executives. Of course, how can I forget our tall lady Anne Marie Barcia from Chase… ..
I received a good number of these correspondent bankers to our Head Quarters and had the honor of hosting them too. I had accompanied a good number of these correspondent bankers on weekends to nearby tourist places of interest.
During my interaction with them, I found their main stay in correspondent bank was to focus on and expand their relationship with domestic banks so as to improve their standing in the market place. They were prepared to offer sops by way of reduced commission, faster processing service, reciprocal foreign trade business, etc.
And I believed till recently correspondent banking deals with these aspects only. Correspondent banks are used by domestic banks in order to service foreign transactions, and to act as a domestic bank’s agent abroad. This is done because the domestic bank may have limited access to foreign financial markets, and cannot service its client accounts without opening up a branch in another country. In short, correspondent bank is a financial institution that provides services on behalf of another, equal or unequal, foreign financial institution.
To establish as a correspondent banker, one should have the following (minimum!)
- A good connect
- Established business
- Ability to offer top class service
- Perfect understanding of the exact requirements of the market place
However, after my short stint in a financial technology company, my ideas about correspondent banking are slowly changing.
These correspondent bankers have unlimited potential.
Most of the banks in the emerging market place look for technology support to handle their expanding business volumes. For this, either they go for ‘COTS’ products or adventurously take up ‘home made’ ‘build’ approach. And we know these approaches are cost prohibitive or take time or both.
To overcome this, our correspondent bankers in developed markets (with good stockpile of FT applications in their portfolio) can consider offering such technology solutions to their trusted customer-banks in emerging markets. This way, the correspondent banks can attempt to monetize their Financial Technology assets.
Of course, our correspondent banks will need to depend on capable Financial Technology Players for customizing their existing applications. Additionally these correspondent banks will need FT Players to implement and support such fine tuned applications.
This way
- Our correspondent banks can monetize their FT applications
- Our domestic banks can get state of art latest FT applications at lesser cost and in time
- Our FT Players can get into a new line of business
Is it not a win-win situation for all the three players?
You may agree!
There is yet another major advantage in this move. I will discuss about this in my next post.