Correspondent Banking
Correspondent banking is the arrangement where one bank holds accounts for and executes payments on behalf of another bank, usually to reach currencies or jurisdictions the first bank cannot access directly. Most cross-border EMI and offshore-bank settlement depends on a correspondent relationship somewhere in the chain.
A correspondent bank that de-risks an entire vertical can cut off your EMI or offshore bank’s SWIFT access with no notice to you, since you are two steps removed from the actual relationship. A business with a single settlement path through one correspondent chain is exposed to a policy decision it will never see coming.
De-risking is a bank’s decision to exit or refuse entire categories of client, rather than assess each business individually, in order to avoid the compliance cost of monitoring them.
SWIFT is the global messaging network banks use to instruct cross-border wire transfers; SEPA (Single Euro Payments Area) is the EU scheme for standardized euro transfers between member-state banks, typically same-day or next-day.
Settlement is the transfer of cleared transaction funds from the card network or payment rail into the merchant’s bank account, net of fees, chargebacks, and any reserve withheld.
An Electronic Money Institution is a regulated entity, licensed separately from a bank, authorized to issue e-money and provide payment accounts and services.