New Investment: TenureX, building the future of correspondent banking relationships

By Gabrielle Inzirillo & Bob Rode Published on Jan. 13, 2021

We are thrilled to announce our newest partnership with TenureX along with Hack VC.

Correspondent banking relationships (CBR) are an essential part of the global economy’s stability. It is also an essential part of the continuous growth of the FinTech revolution as financial services are still highly dependent on banks (e.g. they must hold their customers’ funds in a credit institution).

However, the CBR has not changed significantly in the past decades. It is still based on the standards and principles developed in the 15th century (the basic vostro/nostro relationships) and legacy technology of the late 70s. The risks associated with providing corresponding banking services have changed dramatically following the age of globalization, e-commerce, and online marketplaces, leading to “De-risking” of correspondent banks. The evolution of FinTech and the emergence of the tech giants and other unicorns to the banking sphere will push traditional banks to re-think and to adjust the role of the corresponding banking services unit from “risk only” to “growth opportunity”.

Correspondent banks currently do not have the ability to manage risk vs. reward other than partnering with familiar brand names and operate a binary risk-based approach. Instead of managing the risks associated with anti-money laundering and counter-terrorism financing on a granular basis, banks are terminating their business relationships with entire regions or types of customers (most notably EMI, PSP, and MSB) including small regional banks. According to Accenture, banks will lose $280B in payment revenues to other technology companies by 2025. Due to poor relationship management, operations, high cost, and low margins, correspondent banks are missing opportunities to gain new transactions from reliable customers and mistakenly reject transactions.

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What is Correspondent Banking?

A correspondent bank is a bank that provides services on behalf of another financial institution. It can facilitate wire transfers, conduct business transactions, accept deposits, and trade documentation on behalf of another financial institution. Correspondent banks are most likely involved by domestic banks to facilitate transactions that either originate or are completed in foreign countries, acting as a domestic bank's agent abroad. Generally speaking, domestic banks usually employ correspondent banks because of the limited access to foreign financial markets and the inability to service client accounts without opening branches abroad.

Here’s an example. A bank in San Francisco that is instructed to wire funds to a bank in Tokyo cannot wire those funds directly without a working relationship with the receiving bank. A correspondent bank which has arrangements with both banks can facilitate the transaction. The originating bank sends the funds to its nostro account held at the correspondent bank and the correspondent bank transfers the funds to the receiving bank in Tokyo and charges a transaction fee as the agent. This way, the bank in San Francisco doesn't have to create a presence at this foreign location and saves the work of setting up direct arrangements with other banks around the world.

Banks structure out bilateral agreements with other banks on a one by one basis based on reputation and general trust in the name. The example above may be simple enough, but depending on the banks and how well they are connected to the global banking infrastructure, it might take multiple banks to get to the necessary recipient with each party doing the necessary AML / KYC checks and taking the applicable fees for their services. This is one of the main reasons why cross-border transactions are generally related to high cost, low speed, limited access and limited transparency.

The Role of TenureX

TenureX is an open infrastructure platform that enables creating and running a smart, controlled and transparent correspondent banking relationships. They are unbundling the corresponding relationships into its core unit, the wire transfer, and then, re-building the relationships to function like any card processing program: TenureX unlocks opportunities and unleashes frictionless engagement between financial institutions.

TenureX takes the data provided from each transfer generated and offers it on one, simple to use digital dashboard where members can assess, approve, authorize, and manage their transactional or institutional banking relationships. Using a permission-based approach, members can initiate new relationships, and collaborate per wire transfer (send, accept and reject a transaction) based on a pre-setup of their unique risk appetite.

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TenureX’s vision is to reinforce and adjust the role of banks in the new ecosystem of wire transfers and allow them to become the internet-trusted, collaborative “safe boxes” and liquidity providers of money (Fiat or Crypto).

TenureX will achieve this goal by remodeling the correspondent banking services to a single base transaction model and allow the ecosystem to engage, partner, and work with each other on a programmatic basis. The process will be quicker and cheaper based on a pre-agreed, manageable set of expectations. This will reduce risk, cost, and effort in establishing new relationships. Hence, each member of the ecosystem can increase its volume and the diversity of transactions and achieve higher margins without adding any risk. TenureX is built as a collaboration layer on top of the legacy systems and payment grids. For financial institutions, there is no need for integration, change in the operations or change of the risk appetite.

The TenureX platform matches between two main factors:

  1. The correspondent banks’ compliance standards are matched with the respondents’ conduct. This is made by creating a network with clear entrance rules and creating an eligibility standard.
  2. The correspondent bank’s risk appetite, corridors and liquidity is matched with all of the respondents’ aggregated transactions sent to the platform as a preset program.
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The Team Behind TenureX

TenureX is in the process of building the technology. They initiated relationships with design partners from Tier 1 to smaller banks to pilot the solution and already executed their first agreement with a correspondent bank. Even though they are in the early stage of their journey, we truly believe that they have formed a stellar team to address this challenge. TenureX’s team members have worked with international banks, FinTech unicorn, Neo Banks, small business and everything in-between. All four co-founders held C-Level positions within high growth tech companies (Payoneer, iFOREX, Scanovate and Rumble). We are looking forward to seeing how TenureX is going to revolutionize the correspondent banking industry.

To learn more about TenureX and our Fintech activities in Europe, sign up to our Fintech Europe 2021 Expo.