Global payments are not broken, incentives are

By George Davis, CEO and Founder of Lorum

The default explanation for friction in global settlement is that infrastructure is outdated. There is truth in that. But it only tells part of the story, and building strategy around half a diagnosis leads to half a solution.

The deeper issue is that clearing and settlement largely sit inside institutions whose primary economics are built around lending. Balance sheet utilisation, credit exposure and net interest margin come first. Settlement comes second. Not because banks are failing, but because they are doing exactly what they were built to do.

That distinction matters. It means that delays, trapped liquidity, extended settlement windows and pre-funding burdens are not always signs of broken rails. They are the predictable result of clearing being housed inside institutions that optimise for something else entirely.

Better rails alone will not fix this

Much of the industry still frames the answer too narrowly. Faster messaging, cleaner interfaces, new instruction layers: all useful, but none of them address the incentive structure underneath. A payment can look modern at the front end while still moving through cut-offs, multiple hand-offs, competing treasury priorities and liquidity constraints behind the scenes.

The same applies to newer instruments. Stablecoins, tokenised value and orchestration layers introduce flexibility in how funds are represented and routed. But settlement still depends on liquidity being available at the right moment, exposure being managed appropriately and institutions making decisions within the logic of their own economic model. Changing the instrument does not, by itself, resolve clearing.

What this looks like in practice

Consider a fintech platform settling payroll across five currencies. Each leg of that payment passes through a correspondent chain where the intermediary bank is simultaneously managing its own lending book, treasury position and intraday liquidity. The platform’s settlement is real, but it competes with the bank’s primary revenue activity for the same liquidity. When volumes spike or cut-off windows tighten, the platform’s funds wait. Not because the infrastructure failed, but because the institution’s priorities sit elsewhere. That pattern repeats across the correspondent banking system. BIS CPMI research has documented a sustained contraction in active correspondent banking relationships, particularly across the Americas. Idle funds in nostro buffers. Repeated compliance steps at each intermediary. Fragmented cash management across multiple banking relationships. These are not isolated inefficiencies. They are the structural consequence of clearing being treated as a secondary function.

Clearing needs to stand on its own

If the objective is settlement certainty, stronger liquidity planning and lower operational friction, clearing cannot remain a by-product of lending economics. It needs to sit within institutions designed specifically for movement: specialist correspondent institutions with safeguarded client funds, direct local scheme access, appropriate custody structures and a simpler correspondent chain.

This is not about replacing banks or recycling disruption language. Clearing, custody and cash management are fiduciary services. They work best when they sit inside a non-lending model where the institution’s entire incentive structure is aligned with moving funds predictably and transparently. No competing lending book. No conflicting balance sheet priorities. The FSB’s work on correspondent banking illustrates just how structurally entrenched these dynamics have become across global corridors.

Until the economics of clearing change, settlement outcomes will follow the incentives of the institutions that control it. The market will keep improving the surface while leaving the centre untouched.