The market shift: from de-risking to “smart-risking”
Over the past decade, many global banks “de-risked” entire customer classes (remittances, smaller PSPs, crypto-touching firms) to reduce exposure to AML/sanctions failings. That withdrawal created a service gap even as digital payments growth accelerated. Private banks—nimbler, relationship-led, and often regionally focused—have moved in. They provide safeguarding accounts, FX and liquidity, local scheme access (e.g., SEPA Instant, Faster Payments), and cross-border connectivity (via SWIFT and correspondent partners) to EMIs that power wallets, merchant acquiring, and embedded finance.
Why now?
- Structural growth: Cross-border ecommerce, marketplace payouts, and mobile money continue double-digit growth.
- Technology maturity: API-first treasury, transaction monitoring, and real-time screening are more accessible.
Commercial logic: Fee-based, flow-of-funds businesses help diversify bank revenues.
Three lenses on the same opportunity
1) Traditional banks’ view
Merit: Scale, diversified products, established governance.
Concerns:
- Nested risk: EMIs often serve multiple underlying merchants/users; visibility is harder.
- Regulatory exposure: US and EU enforcement risk, especially on sanctions and AML.
- Operational drag: Enhanced due diligence, ongoing monitoring and bespoke onboarding can be costly.
Net effect: Tier-1s focus on larger, well-established PSPs/EMIs with robust controls; many smaller or higher-risk EMIs are declined or offboarded.
2) Private banks’ view
Merit: Agile underwriting, bespoke onboarding, faster decision cycles, relationship depth.
Playbook:
- Selectivity + segmentation: Define “addressable” EMI verticals (remittances, payroll, gig/creator payouts) with clear risk profiles.
- Control stack: Strengthen sanction screening, perpetual KYC, transaction monitoring (including behavioural analytics), and rapid escalation paths.
- Economics: Price for complexity, bundle FX/treasury, and share data bilaterally to reduce false positives and cost to serve.
Net effect: A differentiated franchise—growth without chasing volume at any cost.
3) EMIs’ view
Merit: Access to accounts, faster settlement, multi-currency liquidity, regulatory credibility, and geographic expansion.
Obligations:
- Full transparency: Share merchant/user hierarchies, flows, and risk signals with the bank.
- Built-in compliance: Strong KYC/KYB, robust transaction monitoring, sanctions and PEP screening, and clear safeguarding segregation.
Change management: Notify banks and regulators of material programme or geography changes before they go live.
Net effect: Bankable at scale—and more resilient to shocks.
What end users actually gain
- Speed: Real-time or near-real-time domestic clearing; faster cross-border through better routing and pre-validation.
- Cost: Tighter FX spreads and fewer intermediaries reduce fees for SMEs and consumers.
- Access: More corridors, more local methods (A2A, mobile money), better payout optionality.
- Trust: Clearer dispute handling, safeguarding of funds, improved fraud controls.
Inclusion: Better on-ramps for freelancers, creators, micro-exporters and diaspora families who rely on affordable remittances.
The regulatory compact: same risks, same rules, smarter supervision
Regulators broadly support innovation, but expect bank-level discipline across the chain.
Common themes across major jurisdictions:
- Safeguarding & segregation of client funds (preventing comingling and ensuring recoverability).
- Effective risk-based AML/CFT (customer risk scoring, ongoing monitoring, SAR/STR where required).
- Governance & accountability (clear senior manager responsibility; outsourcing doesn’t transfer accountability).
- Correspondent & nested relationships scrutiny (visibility into underlying customers and flows).
- Operational resilience (incident response, exit/contingency planning, data protection).
Well-structured supervisory dialogues (bank ↔ EMI ↔ regulator) speed approvals, reduce surprises, and create predictability for scaling.
A practical operating model that works
A. Who does what (clear RACI)
- Bank: Owns AML/sanctions responsibility at the account/correspondent layer; sets risk appetite; validates EMI’s control environment; monitors flows.
- EMI: Performs KYC/KYB on end users and merchants; runs first-line monitoring; shares risk signals upstream; maintains safeguarding.
- Regulator: Sets standards, examines both parties, and clarifies expectations for higher-risk sectors and nested relationships.
B. Data and transparency (the performance multiplier)
- Shared data fabric: Merchant hierarchies, corridor metadata, device/behavioural risk indicators, typologies, and disposition outcomes.
- Perpetual KYC: Event-driven reviews (new corridor, new product, spike in velocity) rather than rigid annual calendars only.
- Joint typology libraries: Align on red flags (layering via stablecoins, micro-structuring, money mules) with rapid feedback loops.
C. Commercials aligned to risk
- Pricing: Reflect due-diligence intensity and monitoring complexity; reward high data quality with better economics.
- SLAs: Speed for standard profiles, escalations for exceptions; quarterly service reviews tied to KPIs (hit rates, false positives, time-to-clear).
Change protocols: “No surprises” rule—material changes notified with impact assessments before go-live.
Detailed responsibilities—brought to life with examples
- Implement TB Sales Strategy (UK & Europe)
Example: Target UK wallet providers needing SEPA Instant and Faster Payments. Offer multi-currency safeguarding plus pre-funded payout rails to reduce settlement risk and improve success rates. - Hit revenue & activity targets with Coverage
Example: Grow a payment gateway’s yearly revenue from €5m to €8m by bundling FX forwards for T+0 settlement, improving reconciliation via virtual IBANs, and adding SEPA Instant. - Build strategic sales plans
Example: Launch a BNPL campaign: liquidity lines for merchant settlements, API-based real-time reporting to cut refunds and chargeback lag. - Originate new business
Example: Onboard an African wallet entering the UK: cross-border settlement accounts, GBP–KES FX, and PSD2-aligned safeguarding. - Own senior relationships
Example: Quarterly whiteboarding with the CFO/CIO of a large PayTech to prioritise corridors, optimise FX routing, and sequence regulatory filings. - Lead RFPs to win
Example: Coordinate Product, Compliance, and Implementation to bid for pan-EU acquiring—show uptime, dispute workflows, sandbox testing evidence, and migration plans. - Ensure clean implementation
Example: For a marketplace payout client: map flows, test sanctions screening latency, validate safeguarding structures, and rehearse incident runbooks. - Price with intent
Example: Offer volume-tiered fees; if the client requests waivers, run unit-economics with risk costs and agree performance-linked pricing. - Onboarding & FCC oversight
Example: For a crypto-touching EMI, require chain-analysis partners, travel rule compliance, and enhanced source-of-funds checks.
Continuous service reviews
Example: QBRs with shared dashboards: approval rates, false positive ratios, fraud losses, corridor performance, and new product pilots.
What could go wrong—and how to prevent it
- Blind spots in nested flows: Fix with deeper merchant mapping and device/behaviour analytics.
- Compliance drift as volume scales: Use adaptive models, real-time typology updates, and periodic independent testing.
- Single-bank dependency: Plan dual banking and orderly exit/portability for safeguarding accounts.
Reputational contagion: Pre-define redlines (e.g., prohibited sectors), run thematic reviews, and act quickly on breaches.
Our view: this can be a consumer win—if we hold the line on controls
The convergence of private banking agility, EMI innovation, and regulatory clarity can deliver faster, cheaper, safer payments for SMEs and households—especially in underserved corridors. It’s not de-risking, and it’s not reckless risk-taking; it’s smart-risking with transparency, aligned incentives, and verifiable controls. Done right, everyone benefits—most of all, the end user.
References & Further Reading
- UK Financial Conduct Authority (FCA): Payment Services & E-Money—Safeguarding and Prudential Risk Management
https://www.fca.org.uk/firms/emi-payment-institutions - European Banking Authority (EBA): Guidelines on Outsourcing Arrangements & ML/TF Risk Factors
https://www.eba.europa.eu/regulation-and-policy/internal-governance/guidelines-on-outsourcing-arrangements
https://www.eba.europa.eu/regulation-and-policy/anti-money-laundering-and-counter-terrorist-financing - European Commission: PSD2 / PSD3 & PSR package (drafts and briefings)
https://finance.ec.europa.eu/regulation-and-supervision/financial-services-legislation/payment-services_en - MAS (Singapore): Payment Services Act—Licensing, Safeguarding, AML/CFT
https://www.mas.gov.sg/regulation/explainers/explainer-on-payment-services-act - FinCEN (US): Correspondent Banking & High-Risk Customers—Advisories
https://www.fincen.gov/resources/advisories - BIS CPMI: Correspondent Banking—Decline, Causes and Impact
https://www.bis.org/cpmi/publ/d155.htm - World Bank: Remittance Prices Worldwide (to understand end-user cost impacts)
https://remittanceprices.worldbank.org/ - FATF: Guidance on Risk-Based Approach for Payment Services & Virtual Assets
https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Guidance-rba-virtual-assets-vasps.html
