Payments to other countries than neighbouring ones or the euro area are more complicated. This is because the Swedish banks do not have direct access to those countries’ payment infrastructures. The Swedish bank must then rely upon a network of bilateral agreements between banks in different countries, known as correspondent banks. These agreements are usually based on one bank (the correspondent) holding deposits owned by another bank (the respondent) and performing payments and other services on behalf of the respondent bank.
International payments are mostly sent over SWIFT’s network for secure financial messages. SWIFT is the largest global supplier of standardised financial messaging services to financial actors in over 200 countries around the world. Although there are joint messaging standards for payment, correspondent bank payments are expensive and slow compared with payments within Sweden or the euro area. According to the Swedish Consumers’ Banking and Finance Bureau, it can take up to five days for a payment to reach the recipient, sometimes even longer. In addition, it is difficult to gain an overview of the payment process as several banks may be involved. Sometimes it can be difficult to know how much a payment will cost and when it will be executed. Among other reasons, this is because the payment process is not automatic and, consequently, must often be handled manually. One further reason for the time it takes is that the central banks’ settlement systems have limited opening hours and are located in different time zones. A payment can therefore be forced to wait for the system to open.
According to the BIS, increasingly strict legislation against money laundering and the financing of terrorism has contributed to a reduction of the number of correspondent banks by 20 per cent from 2011 to 2017. This is despite increased international trade and a greater number of transactions in the correspondent bank system. Above all, the reduction has taken place among smaller banks located in high risk areas where correspondent bank services entail an increased risk. If the present trend persists, the correspondent bank system risks becoming more fragmented, which could lead to less choice for customers.