How instant payment systems are redefining correspondent banking in Asia Pacific

The nature and scope of cross-border payments are changing. Factors such as shifting customer expectations, increasing remittance flows, the globalisation of small and medium enterprises (SMEs), and the rise of digital commerce are significantly driving the volume and value of cross-border payments. The total value of the global cross-border payments market reached $190.1 trillion in 2023 and is estimated to grow to $290.2 trillion by 2030. Within the cross-border payments landscape, emerging opportunities are particularly evident in transactions valued under $100,000. While low-value payments contribute only single digits to total cross-border payment volumes, they represent approximately 30% of global payments revenue.

Expanding opportunities through instant payment integration

Powered by new infrastructure, the payment experience is transforming with the introduction of new channels and methods. The major development underlying this trend is the rise of domestic real-time payments. The implementation of instant payment systems (IPS) has accelerated globally, with over 80 countries now operating live IPS networks, up from 56 in 2020. These systems enable 24/7 processing, transforming the way customers and businesses make and receive payments domestically.

This rapid improvement seen in domestic payments processing has raised expectations of consumers and SMEs when sending and receiving cross- border payments. As instant becomes the new standard, efforts are underway to integrate national payment systems in the region. A key example is the ASEAN Regional Payment Connectivity initiative where the central banks of Indonesia, Malaysia, Singapore, Philippines and Thailand joined forces to accelerate regional payment connectivity by 2025. Central banks of Brunei, Laos and Vietnam became latest members to join the multilateral agreement which aims to integrate their domestic IPS networks for low-value and quick response (QR) code-based transactions.

Another notable example from the Middle East is Buna. It was officially launched in February 2020 by the Arab Monetary Fund (AMF) and operates under the framework of the Arab Regional Payments Clearing and Settlement Organization designed to reduce reliance on costly and slow correspondent banking systems by enabling multi-currency payments in both regional and international currencies.

Advanced regional payment connectivity initiatives such as these will potentially accelerate speed and lower the cost of payments, particularly remittances.

Notably, with increasing intra-Asian migration, the demand for sending and receiving remittances across the region is growing. As these volumes have risen, competition in the cross-border remittance market has intensified. The market is dominated by money transfer operators, fintechs, and exchange houses, which are leveraging application programming interfaces (APIs) to connect more efficiently to existing infrastructures, such as banking networks, payment processors, and clearing systems, to capture the low-value payment space. According to a report by Citi, over 40% of banks have already lost at least 5% of the market share to fintechs, and 89% expect to lose at least 5% of their share to fintechs in the next 5 to 10 years.

This puts pressure not only on FIs that cater directly to their customers, but also on larger clearing banks that provide solutions to institutional clients. With the cross-border business being fundamentally a highly networked and collaborative ecosystem, FIs handling cross-border payments must collaborate and innovate to stay competitive.

Co-creating low-value cross-border payment solutions

In line with the G20’s roadmap for enhancing cross-border payments, the industry has focused on improving the speed, security, and transparency of these transactions. Banks are collaborating closely with each other and with industry bodies to drive efficiencies in cross-border payment efficiencies.

For example, Swift launched Swift Go in 2021 to deliver faster, more transparency and competitively priced lower-value, under 10,000 EUR/USD/GBP, cross-border payments for SMEs and consumers.

By enforcing stricter service level agreements (SLAs) between institutions and pre-validating transaction data, Swift Go allows banks to provide customers a quicker, more reliable payment experience, complete with clear upfront information on processing times and costs. Currently, more than 630 banks across 130+ countries are live on Swift Go. Leveraging the strength of their networks and investments in payment innovation, large clearing banks are advancing solutions tailored for both bank and non-bank customers.

BNY co-developed a low-value payment solutions (LVPS) with a regional bank in ASEAN. LVPS is built on deep knowledge of local clearing systems, regulations, and technical expertise. Its proprietary smart routing technology automatically selects the most efficient payment rail—whether real time gross settlement, automated clearing house, or Swift—based on predefined transaction parameters.

LVPS also offers a single connection for multiple payment formats, including extensible markup language (XML), while API integration enhances reporting and analytics to optimise transactions.

LVPS currently supports settlement in up to 40 currencies via local systems, along with wire capabilities in over 120 currencies. It provides FIs with cost-effective and faster micropayment settlements, transparent rates, upfront costs, and predictable payment delivery. It specialises in handling payments and remittances under $10,000.

Catering to its non-banking clients, it launched a wire payment automation solution for a major payments’ aggregator in Australia. Processing around 1,000 cross-border payments daily, the client needed to automate its payment and foreign exchange (FX) workflows. Through BNY’s banking-as-a-service (BaaS) capabilities, including Unified Payments and Event Notification APIs, the client can now automatically initiate wire payments using the MT103 format. The aggregator also benefited from real-time payment tracking and status notifications.

Bolstering payment processing through infrastructure modernisation

As fintechs transform the payments landscape with lower costs and more agile solutions, FIs are under growing pressure to deliver similarly competitive payment experiences. Customers are demanding increased connectivity to instant local payment schemes to compete with fintechs offering similar services at lower rates. Barclays has invested over $1 billion to modernise its global payment infrastructure, products and processes, including the development of state-of-the-art global command centres and a joint operations centre (JOC). These centres ensure seamless workflow and support and continuous payment processing across time zones, maintaining operations even during emergencies. They enhance cost-efficiency, speed, and risk management in payment processing.

With command centres in Glasgow, New York, and Pune, Barclays ensures 24/7 real-time monitoring of nearly 10 million payments daily, totalling $1.1 trillion in value. These centres, along with the JOC enhance client servicing and provide critical security and operational oversight, safeguarding Barclays’ global payment infrastructure.

Barclays’ technology investments are already delivering results. A leading Indian private sector bank faced significant challenges with its GBP payments, suffering from poor local processing and client dissatisfaction. This led to a loss of business for its UK subsidiary, which was tasked with managing these operations.

Barclays leveraged its deep liquidity and product expertise to offer comprehensive GBP clearing services. It implemented a Swift to UK FPS solution, enabling 24/7 processing of domestic and cross-border GBP inflows, significantly expanding the subsidiary’s reach in the UK market.

As a result, the UK subsidiary’s flows saw an eightfold increase in monthly transaction volumes, with payment processing times improving significantly. Barclays now processes 75-80% of the client’s payments in under five minutes on UK FPS, far exceeding the standard Clearing House Automated Payment System (CHAPS) operating hours.

Enhancing customers’ payments, liquidity and FX management

Corporate customers of FIs also contend with high funding, liquidity and foreign exchange (FX) conversion costs due to their extensive cross-border activities. Managing liquidity in Asia’s fragmented regulatory environment requires a highly strategic and adaptable approach.

Deutsche Bank delivered a comprehensive payments and liquidity management solution to a large Chinese FI client, streamlining the client’s international cash management, particularly within the intra-Asian corridors. As the client’s primary Euro treasury bank, Deutsche Bank enhanced efficiencies in mergers and acquisitions, syndications, and intraday FX settlements.

Deutsche Bank also secured increased US dollar commercial flows by offering tailored cross-border payment solutions, improving the client’s liquidity management. Additionally, the FI client required support for FX payments in exotic currencies as part of its strategy to operate in multiple restricted markets without establishing numerous branch locations. Deutsche Bank addressed this need through its FX4Cash platform, a cross-currency payments platform that enables FIs and corporations to manage cash and execute cross-border payments. FX4Cash provided abroad range of currency options, FX risk management and settlement services.

The way forward

The emergence of IPS in many markets worldwide has presented both opportunities and challenges for correspondent banks. Today’s customers and small businesses expect real-time, cost-effective, and transparent domestic payments. This expectation is now expanding to cross-border payments, with SMEs, for example, seeking a seamless experience when paying overseas suppliers. Correspondent banks must adapt to this real-time cross-border processing model to meet these evolving demands.