Regional SMEs Hampered by Incompatible Correspondent Banking Systems – Report

Small and medium-sized enterprises, SMEs, across Latin America and the Caribbean are struggling to compete globally due to a correspondent banking system designed for multinational giants.

That’s according to a study conducted by the credit card giant, Mastercard.

It found that instead of facilitating growth, traditional cross-border payment processes are holding SMEs back, forcing them to absorb high costs, hidden fees and long delays that undermine their operations and profitability.

Chevon Campbell tells us more.

Nations are increasingly turning to SMEs as their engines of growth, particularly here in Jamaica.

Although small in size, SMEs represent 90 per cent of businesses and account for 70 per cent of employment. But, a study by Mastercard revealed that these enterprises are not making the expected contribution they should to their respective countries’ economic output.

The study found they are struggling in the area of productivity. One area of concern is that the very financial channels SMEs rely on for such cross-border transactions are operating on outdated principles, developed with large corporations in mind.

This system, which should enable agile businesses to trade internationally, instead penalises them at nearly every step.

One of the most significant challenges these businesses face is the high cost of sending money internationally. For small transactions, the financial burden is especially severe.

For example, sending just US$250 can attract fees averaging 23 per cent. While these fees decrease with larger amounts, they remain burdensome even at higher tiers.

The study found traditional banks risk alienating these businesses, potentially driving them towards alternative financial service providers offering more affordable solutions.

In addition to the high up-front costs, SMEs are also losing money through hidden currency conversion charges.

Delays and transaction failures add yet another layer of difficulty. The study found that while speed is critical for businesses operating across borders, the current payment infrastructure consistently fails to deliver.

While payments involving the U.S. tend to perform better, about 40 per cent of payments to non-U.S. destinations experience delays of over four days, and nearly 20 per cent of them take more than 10 days to clear.’

The study says these slow, unreliable payments not only disrupt business operations but also expose SMEs to increased financial and operational risks.

The study concludes that SMEs are being forced to operate within a financial system that was never designed to serve them.

Instead of supporting small businesses to expand globally, traditional correspondent banking processes penalise them with high fees, hidden charges, and unacceptable delays.

It says that unless the system is reformed to meet the needs of smaller players, these enterprises risk being locked out of the global economy they are striving to access.