Distributed ledger technology and opportunities in correspondent banking

Every day, payment disruptors and competitors across the globe are reminding banks the cross-border payment industry is ripe for rejuvenation, promising faster and lower cost alternatives to the current international payment process. Customers expect more and banks are investing to meet and exceed those expectations.

But while opportunities exist to improve the current correspondent banking model, we must not underestimate the value of the existing system. Correspondent banking — facilitated by SWIFT since the 1970s — has withstood over 35 years of wars, natural disasters, financial crises, and regulatory reform.

"Customers expect more and banks and their partners are investing to meet and exceed those expectations."
Chris T’en, Jackie Kallman & Larry Feinberg, Senior manager, payments portfolio, ANZ, Manager, payments industry, ANZ & Head of Complex Initiatives, Global Product Management, Wells Fargo

As an industry-owned body, SWIFT has also been a catalyst for the standardisation and adoption of conventions across more than 11,000 financial institutions. The result is a robust model that has and will continue to evolve, provided there is willingness from the network’s participants.  

There is opportunity for improvement however. The global payments industry, led by SWIFT, has launched the global payments innovation (GPI) initiative to “dramatically improve the customer experience in correspondent banking by increasing the speed, transparency and predictability of cross-border payments”.


To facilitate cross-border payments, banks maintain correspondent relationships with foreign banks in order to access their local payment systems and currencies. 

In each relationship, a bank opens a local currency account (known as a Nostro account) with a foreign bank. When a customer requests a cross-border payment, their bank sends an instruction to the foreign bank to pay the recipient from the local currency Nostro account. 

Every sending bank maintains their own record of payment activity for their Nostro accounts at other banks. This record must then be reconciled with the statement provided by the foreign bank at the end of each day.

One challenge with the existing model is it still relies on the need to maintain and reconcile two separately held versions of the account statement (i.e. the Nostro account holder maintains their own mirror ledger). A number of challenges ensue, including:

  • poor payment transparency, for both banks and customers;
  • onerous reconciliation activities and investigations;
  • delays in advising of fund disbursement; and
  • inefficiencies in management and usage of liquidity and funding.

These issues could be largely addressed if the industry were able to trust a single record of account, to be shared and maintained by multiple correspondent banks.

Blockchain or distributed ledger technologies ('DLT') offer a novel solution to the requirement to maintain a single source of truth jointly owned by all participants in the system.

This technology, when combined with process standardisation and improvement, has the potential to increase the speed of cross-border payment finality whilst also providing increased auditability and preserving the confidentiality of transaction flows. 

The global banking industry has a rare opportunity to transform itself through collaborative innovation of both core infrastructure and process.


“There is a clear opportunity to create a better customer value proposition by offering real-time financial transaction status tracking, better visibility on financial institutions’ fees to and from participating partners, more accurate recovery of fee revenue, and faster resolution of disputed billing transactions,” Judd Holroyde, Head of Global Product Management at Wells Fargo says.

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To promote this innovation, ANZ and Wells Fargo have delivered a proof of concept demonstrating DLTs have the potential to add real value to both the customer experience and the efficiency of correspondent banking.

“We were determined to avoid the hype often associated with emerging technologies and focus our efforts on addressing a real pain point for both financial institutions and customers. The success of our proof of concept highlights what can be achieved when technology and business innovation are combined with cross-industry collaboration,” Nigel Dobson, General Manager Wholesale Digital and Transformation Projects at ANZ says.

The proof of concept resulted in the creation of a shared distributed ledger platform that demonstrates the potential to improve the efficiency and speed of cross-border correspondent banking payment reconciliation and settlement.

ANZ and Wells Fargo developed a prototype within a short space of time that could operate in parallel with existing infrastructure.

“Collaborations like this one will help establish a framework for innovation across financial institutions. Collaborative R&D projects not only help improve internal operations, but they also help drive breakthrough improvements across the financial services industry,” Holroyde says. 

Dobson hopes the results will form the basis of further discussions and knowledge-sharing across the industry.

“While this joint initiative has advanced our collective thinking on innovations in this space, the networked nature of both this problem and the proposed DLT solution means the full benefits will only be realised through broad industry participation and adoption,” he says.

To read more on distributed ledger technology and the opportunities in correspondent banking from ANZ & Wells Fargo, read our whitepaper HERE.

Chris T’en is Senior Manager, Payments Portfolio, ANZ, Jackie Kallman is Manager, Payments Industry, ANZ and Larry Feinberg is Head of Complex Initiatives, Global Product Management at Wells Fargo.

© 2016 Wells Fargo Bank, N.A.  Member FDIC.  Deposits held in non-U.S. branches are not FDIC insured.  All rights reserved.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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