Correspondent banking relationships have declined more than 20% globally since 2011, with steeper declines in some regions. For global transaction banks, the retreat is a portfolio optimisation decision: exit low-margin clearing, concentrate on high-value clients, reduce compliance surface area. For payment service providers, the decline translates directly into operational risk. Banking access that was once routine is now competitive, conditional, and increasingly fragile.
The UK government has responded. The Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations 2025, formally made on 12 June 2025 and effective 28 April 2026, will require banks and PSPs to give customers at least 90 days' notice before terminating a payment service contract, up from the current two months. Termination notices must include a written explanation sufficiently detailed for the customer to understand the decision. Customers must be informed of their right to complain through the Financial Ombudsman Service.
These protections are welcome. They do not solve the underlying structural problem. PSPs need banking access not because of consumer protection rules, but because the correspondent banking model requires it. Addressing the access question means understanding why banks are closing PSP accounts and what infrastructure alternatives exist that do not depend on maintaining those relationships.
Why banks close PSP accounts
The FCA reviewed account closure decisions across UK banks in 2023 and 2024. The findings found no evidence of closures based primarily on political views, but identified significant inconsistency in how firms applied "reputational risk" as a factor. Some banks used the term to describe genuine business risk. Others used it as a catch-all for clients that were operationally complex or compliance-intensive. The FCA expects firms to show that these concerns have been addressed.
For PSPs specifically, the economics are straightforward. A payment institution processing high volumes across multiple currencies requires significant compliance oversight from its banking partner: transaction monitoring, sanctions screening, KYC on downstream customers, and reporting. The revenue the bank earns from the PSP's account often does not justify the compliance cost. When the bank's risk appetite tightens, PSP accounts are among the first to be reviewed and the last to be replaced.
The FATF's guidance on de-risking has repeatedly warned that blanket de-risking is inconsistent with the risk-based approach that underpins AML frameworks. But banks make portfolio decisions, not individual risk assessments. When an entire category of clients becomes more expensive to serve than the revenue it generates, the rational response is to exit the category. The termination regulations address the notice period. They do not address the economic incentive.
The operational consequences
For a PSP that loses its banking relationship, the consequences are immediate and severe. Payment processing stops. Client funds may be temporarily frozen during the transition. Regulatory obligations continue regardless of banking status. The 90-day notice period under the new regulations provides more time to find alternatives, but finding a replacement banking relationship is itself a multi-month process involving due diligence, onboarding, and integration.
The problem compounds with scale. A PSP operating across ten markets typically maintains banking relationships in each, sometimes multiple relationships per market for redundancy. Losing one relationship creates operational risk. Losing two can threaten the business. According to Bird & Bird's analysis, exceptions to the notice requirement include suspected financial crime and AML compliance failures, meaning the protections do not apply in exactly the scenarios where PSPs are most vulnerable to sudden closure.
The fragmentation itself creates risk. Each banking relationship requires separate compliance documentation, separate reconciliation, separate reporting, and separate operational processes. The more relationships a PSP maintains to mitigate de-banking risk, the more complex and expensive its operations become. The overhead of managing ten banking relationships across ten markets is not ten times the cost of one. It is significantly more, because each relationship introduces its own compliance requirements, operational procedures, and reconciliation demands.
The specialist correspondent alternative
The structural response to de-banking is not finding more banks. It is reducing the number of banking relationships required. A specialist correspondent institution that provides clearing, custody, and liquidity management across markets through a single relationship fundamentally changes the PSP's exposure to de-banking risk. The platform's operational continuity no longer depends on maintaining a network of bilateral banking relationships.
The distinction is important. A traditional correspondent bank provides clearing as one of many services, alongside lending, FX, trade finance, and capital markets. When the bank's risk appetite changes, clearing clients are assessed against the full portfolio. A specialist correspondent provides clearing as its primary function. The relationship exists specifically to serve platforms that need to move money across borders. The business model is aligned with the client's needs, not competing with them.
A single correspondent relationship providing multi-currency clearing across 30+ markets replaces fragmented banking in each. Settlement timing becomes predictable because the institution is designed for clearing, not lending. Custody is structural: named custody accounts for each client, satisfying safeguarding requirements by design. FX is priced at wholesale interbank rates rather than through embedded markups that compound across multiple banking relationships.
Building resilience into infrastructure
PSPs preparing for the new regulatory environment should consider three questions about their banking infrastructure. First, how many banking relationships does the platform maintain, and what is the operational cost of each? The compliance and reconciliation overhead of fragmented banking is often underestimated until a relationship is lost and the replacement cost becomes visible.
Second, what happens if the primary banking partner in a key market exits? The 90-day notice period provides breathing room, but not a solution. Platforms should evaluate whether their infrastructure can absorb the loss of any single banking relationship without disruption. Third, does the custody architecture satisfy safeguarding requirements converging across the UK, EU, and US? Platforms on pooled structures face additional vulnerability: a banking partner closing an omnibus account affects every client whose funds sit within it.
Lorum provides cash management infrastructure for fintech and PSP platforms through a single regulated correspondent relationship. One integration, predictable settlement, segregated custody, and clearing infrastructure designed for platforms that move money, not institutions that lend it. De-banking is a structural trend, not a temporary disruption. PSPs that build infrastructure independent of individual banking relationships absorb the impact when it arrives.
