Learning Objectives:

  • Understand the mechanics of cross-border payments.

  • Explain correspondent banking and the SWIFT network.

  • Identify the challenges in cross-border payments.

4.1 Correspondent Banking

Correspondent banking is the traditional mechanism for cross-border payments. It involves one bank holding accounts (nostro accounts) for another bank and providing payment services. This allows banks to clear payments in foreign currencies without a physical presence.

4.2 SWIFT and Messaging Standards

SWIFT is a global member-owned cooperative that provides a secure messaging network for financial institutions to communicate payment instructions. The University of Edinburgh course covers “the UK payments system” and “technological developments” .

4.3 Challenges in Cross-Border Payments

Key challenges include:

  • Cost: Cross-border payments are often more expensive than domestic payments.

  • Speed: They can take days to settle.

  • Transparency: Lack of end-to-end visibility.

  • Complexity: Multiple intermediaries and regulatory regimes.

 

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