Wells Fargo courts small banks for cross-border payments

Angus Mordant/Bloomberg

Community and regional banks are threatened with irrelevance if they can't support cross-border commerce and supply chains. This creates an opportunity for larger banks to extend their own payment processing networks.

Wells Fargo recently partnered with Derivative Path, a capital markets technology seller, to perform several functions involved in cross-border payments, such as foreign exchange and anti-money-laundering compliance.

At stake is a market that totaled about $40 trillion in 2024, according to FXCIntelligence, noting cross-border payments are on pace to pass $62 trillion by 2032. The growth of digital payments, speedier processing and overall e-commerce will drive this international transaction expansion, the data provider said recently.

That places pressure on smaller banks that may not have the budgets to support real-time international payments in-house. Wells Fargo, which competes with JPMorgan Chase, PNC, Bank of America and Citigroup among large banks that support international payments, is combining several cross-border processing tasks to simplify and expand the traditional correspondent banking role.

"Community banks have lots of challenges in cross-border payments," Dan Vogt,Wells Fargo's managing director and head of FX payment solutions, told American Banker. "If you're in the U.S. and want to pay in euros, you may have to call a correspondent bank on the phone and fill out a paper form. There's a lot of manual work. This is a way to automate that process."

The Wells Fargo/Derivative Path service covers more than 120 currency pairs and uses Wells Fargo's payment application programming interfaces to provide access to Derivative Path tools that hedge FX rate risk and connect the smaller banks to global liquidity pools.

Smaller banks traditionally have to use multiple third parties to manage these tasks, usually relying on correspondent banks in individual markets, which slow processing and add fees. Large banks can usually perform these transactions within their own networks, placing smaller banks at a disadvantage.

Wells Fargo and Derivative Path said they are not competing with the community and regional banks since the cross-border payment automation service is an expansion of existing relationships that do not intersect with the smaller banks' lines of business.

"These are joint clients that rely on us to move the money around," Vogt said.

Pradeep Bhatia, CEO and co-founder of Derivative Path, said concerns over a large bank like Wells Fargo taking consumers from the smaller banks are "overblown," said.

While large banks do compete with smaller banks, the downmarket institutions maintain stronger ties with their own clients, Bhatia said These are mostly small businesses that are expanding into new lines of business by selling products to consumers or extending supply chains outside of the U.S. and are looking for better technology rather than a reason to change their overall banking relationship, he said.

Other large banks have also made recent moves to add cross-border technology with an eye on supply chains.

Morgan Stanley in December contracted with London payment firm Wise to facilitate foreign exchange settlement for the bank's corporate clients. Wise in late 2024 also added Standard Chartered and Nubank to support cross-border payments.

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Wise builds partnerships with local technology companies to create a network to manage payment processing on behalf of banks that are moving funds between countries. The network enables parties to make or accept payments in their own currency.

In a similar move, Dutch banking giant ABN Amro in December signed a partnership with European payment fintech Two to build a digital "pay on invoice" product that supports flexible terms for corporate payments.

These large bank/fintech partnerships can expand the banks' ability to sell services to smaller banks.

"With many smaller banks, it's an extension of a relationship they already have, sort of a value-ad," said Jessica Pinkston, a senior director at Cornerstone Advisors, adding it's common for community banks to use large banks such as Wells Fargo to execute wire transfers.

The Wells Fargo partnership has enabled Nashville-based FirstBank to reduce transaction fees, which has boosted adoption rate for cross-border payments, said Ron Zimmerman, director of deposit operations and automation and senior vice president at the $13 billion-asset bank, in an email.

Neil Denault, assistant vice president and capital market manager at Champaign, Ill.-based Busey Bank, said the collaboration has enabled the $12 billion-asset bank to independently originate international wire transfers. Busey Bank also said in the first month of implementation, the bank processed more than 500 foreign-exchange payments with only one client query.

"In the complex world of cross-border payments, financial institutions need to navigate the nuances of regulations across different jurisdictions," said Brian Riley, co-head of payments at Javelin Strategy & Research. "Aligning with a top industry provider such as Wells can make life a lot easier, and also bring in better cash management controls and fraud protections. This is particularly important for community banks and regionals, revitalizing the old banking concept of correspondent banking."