Finance

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

It started with global regulators. Money-laundering fines pushed banks into stringent know-your-customer measures that made the big institutions suspicious of smaller peers in emerging markets.

Last year, Bank Mandiri, Indonesia's largest, complained that big international banks were limiting remittances because of rules to curb illegal cash flowing across borders. Ferry Robbani, the company's head of international banking and financial institutions, said at the time that every remittance brought a blizzard of expensive messages via the Society for Worldwide Interbank Financial Telecommunication, or Swift, to verify the customers.

A Lot of Traffic
Swift messages have been increasing, and reached a record on March 31
Source: Swift
*Average taken on a quarterly basis.

What happens when the banks become suspicious of the messages themselves? As Swift digs deeper into the hack on the Bangladesh central bank, it's finding that many similar attacks have occurred from New Zealand to the Philippines. The implications are serious for economies that depend on remittances, including Indonesia, Mexico and Ecuador. The Philippines alone received the equivalent of 10 percent of its GDP in remittances from workers across the world in the 2011-2015 period. 

Money Moves the World
Global remittances are still increasing, and most rely on Swift messaging
Source: World Bank

Banks in these countries could also suffer. BDO Unibank, the biggest lender in the Philippines, said in its annual report that remittance subsidiaries in Asia, Europe and the U.S. represented 1.1 percent of total revenue last year. Most of the money sent around, however, doesn't go through these specialized branches. Instead it travels via correspondent-banking services of the kind that troubled Mandiri. 

Every time a layer of suspicion is added to a banking transaction, more checks are needed and costs increase. As those costs are passed along to people who can least afford them, workers in the Middle East or Singapore trying to send funds home might turn to services such as MoneyGram and Western Union -- currently more expensive, but perhaps not for long. 

Swift needs to overhaul its systems, for example by adopting blockchain technology, as Gadfly recommended. Unless that happens soon, expect its smaller member banks in emerging markets to suffer as less cash flows into deposit accounts for on-lending, and profits dwindle.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net