UK bridging lenders are facing an unprecedented operational crisis as the global network of correspondent banks has contracted by 25% over the past decade. This significant reduction in banking relationships has created severe bottlenecks for bridging lenders who depend on these networks for cross-border transactions, liquidity management, and payment processing.
The contraction stems from a perfect storm of factors: heightened regulatory scrutiny, increased compliance costs, and strategic shifts by banks to mitigate risks associated with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations. Major UK banks including HSBC, Lloyds, and Santander have been reducing operations, cutting jobs, and in some cases, considering market exits entirely.
This decline is particularly troubling when examining the contradictory trends in cross-border payment volumes. According to Finextra's analysis of SWIFT's global payment messaging system data across major financial corridors in Europe, the Americas, and Asia, while the value and volume of cross-border payments increased by 2% and 7% respectively in 2020, correspondent banking relationships contracted by 4% during the same period [2]. This comprehensive analysis of transaction data highlights the growing mismatch between transaction demand and available banking infrastructure, creating significant operational trabajado for UK bridging lenders.
The economic implications of this decline are far-reaching. For bridging lenders specifically, this means higher operational costs, delayed settlement times, and reduced access to international markets—all of which directly impact their ability to serve clients efficiently.
The correspondent banking decline is severely exacerbated by outdated technical infrastructure that pervades the financial services sector. According to a recent Financial Conduct Authority report, 58% of UK financial services firms still use legacy infrastructure for some operations, while 33% depend on it for most of their activities [3]. This prevalence of outdated systems creates a compounding effect on the correspondent banking crisis.
These legacy systems lack the agility and integration capabilities needed for efficient cross-border transactions, forcing bridging lenders to develop costly workarounds that increase operational costs and processing times. Even more concerning, up to 70% of bank IT budgets are spent on maintaining these legacy systems rather than investing in innovations that could mitigate correspondent banking dependencies [3].
The technical challenges are particularly acute for bridging lenders who operate in a time-sensitive market. Legacy systems often require manual interventions and reconciliations, creating delays in payment processing and liquidity management. Many UK financial institutions still rely on the Common Business-Oriented Language (COBOL), a coding language dating back to 1959, for core banking operations. According to Finextra's research, this reliance on outdated programming languages creates significant maintenance challenges and limits the ability to integrate with modern financial technologies [3].
What specific technical inefficiencies are most damaging to bridging lenders in this environment? The combination of outdated core banking systems with fragmented payment infrastructures creates excessive processing times for cross-border transactions, often resulting in delays that should ideally occur within hours. This timing mismatch is particularly problematic for bridging lenders whose business model depends on rapid deployment of capital.
Modernization strategies are emerging as essential for financial institutions to overcome these technical burdens. According to Finextra's research, successful modernization requires a phased approach that balances immediate operational needs with long-term technological transformation [3]. This includes:
These modernization strategies can help bridging lenders reduce their dependence on traditional correspondent banking relationships while improving operational efficiency and reducing costs.
The regulatory burden has become a significant factor in the 25% reduction of correspondent banks. For bridging lenders, this means not only dealing with their own compliance requirements but also adapting to the stricter risk policies of their remaining banking partners. This creates a multiplier effect where each remaining correspondent bank relationship becomes more expensive to maintain and more complex to navigate.
Financial institutions are constantly facing regulatory changes, which underpins the resistance to change in correspondent banking relationships [4]. The heightened focus on regulatory, reputational, and financial risks from AML and CFT has led many banks to conclude that the risk presented by a sprawling network of interbank relationships—particularly in emerging markets—is simply too great to bear.
For UK bridging lenders specifically, these regulatory pressures have created disproportionate compliance burdens. According to the Bank for International Settlements (BIS), the number of active correspondent banking relationships declined by approximately 25% between 2011 and 2020 [17]. This contraction is attributed to increased regulatory pressures, heightened compliance costs, and a reduced risk appetite among banks.
The compliance burden is particularly challenging for smaller lenders. A report by Airwallex highlighted that 95% of UK finance leaders struggle with managing global spending due to disconnected management tools and manual processes, exacerbated by the need to meet complex regulatory requirements [18]. This situation is compounded by the reduction in correspondent banking relationships, which increases the compliance burden on remaining partnerships.
In response to these challenges, financial institutions are exploring regulatory technology (RegTech) solutions to streamline compliance processes and reduce costs. These solutions leverage artificial intelligence and machine learning to automate compliance monitoring, reporting, and risk assessment, potentially helping bridging lenders maintain vital correspondent banking relationships while reducing the operational burden of compliance.
The current crisis presents a paradoxical situation for UK bridging lenders. On one hand, the UK mortgage market is experiencing robust growth, creating substantial opportunities for bridging lenders to fill gaps in traditional financing. On the other hand, bridging lenders face significant operational constraints stemming from the correspondent banking decline, limiting their ability to capitalise on this market growth. This creates a frustrating scenario where market demand is increasing precisely when operational capacity is being constrained.
The paradox is particularly acute for bridging lenders who specialise in rapid, short-term financing solutions. These lenders rely on efficient payment processing and liquidity management to maintain their competitive edge in providing quick turnaround times for borrowers. As correspondent banking relationships diminish, these operational advantages become increasingly difficult to maintain.
Liquidity management—a critical function for bridging lenders—is particularly impacted by the correspondent banking decline. With fewer banking partners, bridging lenders face challenges in efficiently moving funds across borders, managing currency exposures, and maintaining adequate liquidity buffers. This can lead to increased cash holdings, higher opportunity costs, and reduced lending capacity at precisely the time when market opportunities are expanding.
As correspondent banking relationships decline, innovative solutions are emerging to fill the gap. New fee management systems within banking platforms are helping financial institutions maintain separate balances for clients, execute internal transfers, collect fees, and handle reconciliations through one login [6]. By adopting these solutions, bridging lenders can potentially overcome some of the operational strains caused by the 25% reduction in correspondent banks.
Singapore-based Bruc Bond, for example, has launched a new fee management system within its OSKAR banking platform to help financial institutions compete with traditional banks in cross-border payments. This move removes one of the key operational complexities that has historically given traditional banks an advantage [6].
"The decline in correspondent banking relationships has left many communities reliant on these services without alternatives," notes a recent Finextra article on the modernization of cross-border payments. "To address this, banks are encouraged to modernize their payments infrastructure to meet increasing consumer and SME demands." [9]
Open banking initiatives are also providing new opportunities for bridging lenders to streamline their operations and reduce reliance on traditional correspondent banking relationships. By leveraging open banking APIs, bridging lenders can access real-time financial data, improve risk assessment, and enhance liquidity management—all critical functions affected by the correspondent banking decline.
"The current model for cross-border payments relies on a patchwork of banks, with correspondent and intermediary banks working with originating banks to process payments," explains a recent analysis from Payments Journal. "This complexity has led to a 25% reduction in the number of correspondent banks in the last decade. This has increased pressure on existing correspondent banks, which are already struggling under the weight of manual processes." [4]
For bridging lenders, these alternative payment infrastructures offer a potential lifeline, providing ways to maintain operational efficiency without relying on traditional correspondent banking networks. As these solutions mature, they could help bridge the gap between the growing demand for cross-border transactions and the contracting correspondent banking infrastructure.
Technology modernisation has become not just a competitive advantage but an existential necessity for bridging lenders facing the correspondent banking crisis. The high cost of maintaining outdated systems diverts resources that could otherwise be used for innovation and adaptation to the changing correspondent banking landscape.
For bridging lenders, technology modernisation offers a path to greater operational efficiency and resilience in the face of declining correspondent banking relationships. By investing in integrated platforms that streamline operations, bridging lenders can reduce their dependence on traditional banking infrastructure.
Artificial intelligence is transforming lending operations by enabling more efficient processing and decision-making. According to industry research, "AI-powered chatbots and virtual assistants will streamline loan applications, reducing approval times from days to minutes" [15]. This acceleration in processing capability is particularly valuable for bridging lenders who compete on speed and efficiency.
Cloud-based loan management systems are emerging as another critical technology for bridging lenders navigating the correspondent banking crisis. According to industry experts, "Cloud-based systems offer faster deployment, secure remote access, and integration with AI, blockchain, and data analytics tools. This shift enables financial institutions to manage large volumes of data securely and efficiently" [16]. For bridging lenders specifically, cloud infrastructure provides the scalability and flexibility needed to adapt to the changing correspondent banking landscape.
Real-world implementations of these technologies have demonstrated significant benefits. A Berkshire Hathaway and Jefferies Financial Group company in the multi-family lending space implemented a modern lending platform to establish a uniform underwriting system and automate processes. This modernization allowed underwriters to focus on complex tasks rather than minor details, enhancing productivity and collaboration. As one user noted, "LendingStandard sends reminders to help get things done. That alone is worth using the platform; it saves a lot of man hours." The company was able to handle greater loan volumes without increasing headcount, as the platform gave staff "more time to do the stuff with heart" [13].
Similarly, Gaia, a UK-based lender dedicated to making IVF accessible, implemented a modern loan management system to automate loan processes and manage a growing portfolio efficiently. This allowed them to handle multi-currency operations and provide real-time data access without expanding their team. "LendFusion made the transition effortless, and gave us the scalability and automation we needed to grow without increasing our team size," reported a company representative [14].
kennek, a complete lending software platform for alternative credit, provides bridging lenders with an end-to-end solution that can help mitigate the impact of the correspondent banking decline. By digitising and automating the entire lending lifecycle, kennek enables bridging lenders to operate more efficiently with fewer banking relationships, reducing the operational strain caused by the correspondent banking crisis.
The economic uncertainty in the UK adds another layer of complexity for bridging lenders navigating the correspondent banking decline. The UK government is facing major fiscal challenges ahead of its June 11 Spending Review, with high fiscal risks including increased spending pressures, rising yields, and the possibility of weak growth [7].
As fiscal pressures mount and potential growth downgrades loom, bridging lenders face a more challenging lending environment precisely when their operational infrastructure is under strain. The Chancellor is expected in the Autumn to announce fiscal consolidation measures to meet the government's fiscal rules, which could further impact the lending landscape [7].
This combination of macroeconomic pressures and operational constraints creates a perfect storm for UK bridging lenders. Those that can successfully navigate these challenges through technology modernisation and alternative payment infrastructures will be well-positioned to capitalise on the growth opportunities in the UK mortgage market, despite the ongoing correspondent banking crisis.
The 25% reduction in correspondent banking relationships over the past decade has created a significant operational crisis for UK bridging lenders. This decline, exacerbated by legacy systems, regulatory pressures, and economic uncertainty, presents a paradoxical situation where market opportunities are increasing precisely when operational capacity is being constrained.
However, the emergence of alternative payment infrastructures and the imperative for technology modernisation offer potential pathways forward. By embracing these solutions, bridging lenders can reduce their dependence on traditional banking infrastructure and position themselves to capitalise on the growth opportunities in the UK mortgage market.
The integration of emerging technologies such as AI-driven underwriting and open banking presents particularly promising avenues for bridging lenders seeking to overcome the operational challenges posed by the correspondent banking decline. As demonstrated by companies like Setana, a financial services provider for retail businesses, implementing modern loan management software can significantly reduce manual errors and processing times, leading to faster loan approvals and improved customer satisfaction. "LendFusion has given us the tools to scale efficiently without the administrative burden," noted a company representative [14].
Similarly, Planet42, a car subscription company operating in South Africa, integrated automated loan origination, servicing, and multi-currency support to manage an expanding customer base without additional administrative staff. "LendFusion has empowered us to expand without being held back by manual processes," they reported [14].
Looking ahead, bridging lenders should consider implementing the following strategies to navigate the correspondent banking crisis:
As the correspondent banking landscape continues to evolve, bridging lenders that can successfully navigate these challenges will emerge stronger and more resilient. The crisis, while significant, also presents an opportunity for innovation and transformation in the UK bridging lending sector.
We observe that bridging lenders face significant operational hurdles that impede their ability to operate efficiently and capitalise on market opportunities. The reliance on outdated processes and fragmented systems creates bottlenecks in critical functions like transaction processing, liquidity management, and compliance. We believe that overcoming these challenges requires a fundamental shift towards modern, integrated technology infrastructure. Our mission is to simplify lending operations, and we see technology as the only viable path for lenders to build the resilience and speed necessary to thrive in this environment.
An integrated platform that automates the entire lending lifecycle is essential. This enables lenders to move beyond manual workarounds, gain real-time insights for proactive risk management, and streamline compliance reporting. By providing a single system of record that connects all necessary tools and data, we empower lenders to increase operational capacity, reduce costs, and accelerate decision-making. This approach allows bridging lenders to maintain their competitive edge and scale effectively, regardless of external infrastructure constraints.
Xavier De Pauw is the co-founder & CFO of kennek, a complete lending software for alternative credit. With over a decade at Merrill Lynch in structured finance, Xavier co-founded challenger banks MeDirect Group and MeDirect Bank Belgium, building a €2.5 billion balance sheet. His fintech leadership includes founding Fintech Belgium and driving digital transformation at Degroof Petercam private bank. His expertise bridges traditional banking and innovative lending technology.
[1] In charts: How Britain's banking revolution failed, Financial Times
[2] Correspondent banking relationships: How are they changing in 2023 and beyond?, Finextra
[3] NextGen retail banking: A roadmap to successful modernisation, Finextra
[4] Fear and Friction in Cross-Border Payments: The Alternative to Correspondent Banking, Payments Journal
[5] Increased activity in mortgage market anticipated in 2025, UK Finance
[6] Fintechs stuck in $124tn B2B payments gridlock, new solution launches offering a way out, Finextra
[7] UK fiscal concerns remain elevated - BofA, Investing.com
[8] The impact of de-risking by correspondent banks on international trade, IPP Media
[9] Addressing compliance costs as a barrier to correspondent banking and trade finance, Trade Finance Global
[10] Correspondent banking and cross-border payments need modernisation, Finextra
[11] Future Trends in Loan Underwriting, FasterCapital
[12] The Evolution Of Small Business Lending: AI-Driven Underwriting Takes Center Stage In 2025, Forbes
[13] Case Study: Modernizing the Lending Process and Increasing Efficiency with Technology, LendingStandard
[14] Case Studies: Loan Management Software, LendFusion
[15] Loan Management System Trends 2025: What's Next in Digital Lending, High-End Fintech
[16] Commercial Lending Software: How It Can Benefit Your Business, PowerHomeBiz
[17] Correspondent banking data, Bank for International Settlements
[18] Legacy systems hamper 95% of UK finance leaders' spend management, IBS Intelligence