The delivery of cross-border payments using correspondent arrangements forms the basic plumbing of the financial services infrastructure. Over the past decade, however, there has been no shortage of those forecasting the extinction of this model at the hands of alternate payment providers (APPs). There is some justification for this - correspondent banking is not frictionless or low cost. It is difficult for the remitter and the beneficiary to always know what stage their payment is in, or what charges will be deducted along the way.</p> APPs come in many forms, and enable payment initiation across a range of channels. For example, a customer using Google Wallet or PayPal can make payments funded from a bank or a credit card, and can initiate these through the internet or a mobile application. Some APPs, like Bitcoin or M-Pesa, do not require traditional bank accounts, and transact in virtual currencies like bitcoin or mobile talktime. However, even the most successful ones have so far had the greatest impact on low-value retail payments within borders. Correspondent banks, on the other hand, have developed systems built around moving money across borders for corporates and institutions besides the retail sectors. They handle large-value payments which tend to be supported by complementary products and services like loans, lockbox collections, etc.</p> Along with the rise of APPs and their innovative solutions, there has been negative press around fines for sanctions and money laundering lapses in the banking industry. The emergence of virtual currencies, particularly the publicity around bitcoin, has increased the excitement and interest around different methods of transferring legal tender. In this context, given their use of friendlier consumer technology, the APPs appear more and more attractive as a means of transacting payments.</p> Despite their seemingly game-changing innovations and drive to dominate payments landscape, APPs still face barriers in key areas.</p> </p> Article contributed by Standard Chartered.</strong>This article is an excerpt. View the full article here</a>.</p>