Global geopolitical tensions and economic uncertainty are creating unprecedented stress for banks’ cross-border payments. Banks that build optionality into their payments architecture can maintain continuity, protect client trust, and position themselves to adapt and grow even in volatile environments.

Geoeconomic confrontation is ranked highest among global risks most likely to result in a material crisis. The World Economic Forum’s Global Risk Report survey shows that over 57% of respondents believe that upheavals and global catastrophes could materialise in the next decade. Continuous shifts in global power, increasing geopolitical tensions, and sanction uncertainty mean that financial institutions are operating in a state of “permacrisis”.

“Banking leaders say two leading challenges affecting their organizations are economic volatility and geopolitical complexity.”

- KPMG, The Future of Risk in Banking Report

Cross-border payments often bear the brunt of impact early on because they sit at the intersection of regulation, liquidity, currency volatility, and correspondent banking relationships. For Risk Officers and Payments Business Heads, this creates a shared priority to maintain operational resilience and protect revenue in cross-border payments when external conditions change quickly.

Why geopolitical events translate into cross-border payments risk

Payments are one of the most valuable sectors in financial services - they are also the most sensitive to risks triggered by geopolitical events. While changes in political conditions rarely create new risk types, they do amplify existing ones across compliance, liquidity, and operations.

Geopolitical and regulatory triggers

Sanctions, trade restrictions, and diplomatic actions directly impact how payments move.

Recent examples include:

• Russia’s removal from SWIFT
• Rapid expansion of EU and U.S. sanctions lists
• Heightened monitoring expectations from OFAC and EU authorities

These changes can occur overnight, outpacing internal change management cycles, including updating screening rules, routing configurations, and customer communication processes. The shock creates operational pressure and increases the likelihood of false positives, delays, or compliance breaches.

Sovereign and country risk

Geopolitical instability is closely tied to sovereign actions that restrict the movement of funds.

Banks have seen:

• Capital controls (e.g., Argentina’s limits on USD access)
• Repatriation delays driven by local FX shortages, inconvertible currencies, and tighter currency controls
• System outages or shortened settlement windows, especially in markets with stressed central banking infrastructure

These risks manifest as settlement delays, unpredictable access to liquidity, and increased reliance on local partners.

Correspondent and counterparty risk

Geopolitical tension increases the compliance burden on correspondent banks. As sanctions lists expand and expectations for AML/CTF diligence rise, some providers reduce exposure to higher-risk corridors.

The consequences of de-risking countries and counterparties include:

• Reduced corridor availability
• Stricter transaction screening and monitoring
• Increased dependency on remaining correspondents
• Higher correspondent banking fees

A reduction in correspondent options can quickly translate into operational bottlenecks and settlement delays.

FX, settlement, and liquidity risk

Political uncertainty often drives FX volatility and stresses settlement processes. This affects:

• Intraday liquidity management
• Nostro account balances
• Settlement timing and prefunding requirements
• The cost of executing urgent payments

Disruptions can force liquidity hoarding and increase gridlock risk when flows start to dry up across multiple corridors simultaneously.

Optionality is a strategic risk decision

Systems designed with optionality reduce the fragility of the payment architecture by enabling controlled adaptation across rails, corridors, and counterparties. Optionality protects business continuity by enabling the bank to adapt to volatile conditions without sacrificing control. This flexibility also positions banks to capture new growth opportunities as economic power shifts.

The challenge with hyper-optimised legacy systems

Legacy systems are slow to respond to rapid change, not only because they are built on outdated technology, but also because they are often built on strict assumptions about markets, corridors, counterparties, regulation, and political stability. As a result, when conditions change rapidly, legacy platforms are rarely able to adapt quickly, especially when dependencies run deep, change cycles are slow, and international service providers are unlikely to prioritise non-core markets.

That said, legacy systems are not inherently flawed. Optimised legacy systems protect the business in stable conditions. This is especially true in domestic markets where the central bank’s RTGS system is mature and reliable, and where payment flows, settlement windows, and liquidity needs are well understood. In these contexts, optimised legacy infrastructure can efficiently process high-value transactions with confidence and control.

This stability, however, is conditional. It holds only as long as the assumptions underpinning the system remain valid. When shocks occur, payment systems designed for controlled environments offer limited room to manoeuvre volatility, forcing reactive interventions that increase operational and reputational risk.

Optionality as a tool to reduce cross-border payments risk

However, optionality and optimisation should not be viewed as opposing strategies. Legacy platforms and traditional corridors do not have to be abandoned, and optionality does not imply activating every available rail. Rather, the goal is to introduce controlled choice when under stress.

From a risk perspective, this means reducing single points of failure common in legacy systems. By avoiding reliance on a single settlement path, correspondent, or liquidity source, optionality reduces the likelihood of payment delays, manual interventions, and reactive process changes. In doing so, banks can absorb the disruption within the payment ecosystem rather than pass it through to clients.

What does this look like in practice? Payment rails, corridors, and partners are approved in advance by risk and compliance teams, with routing rules and fallback paths clearly defined. This ensures that when sanctions, political disruptions, or market volatility occur, the system can switch paths within existing controls. As a result, urgent payments continue with minimal interruption, clients are offered transparent alternatives, and operations teams can stabilise flows without improvisation. The outcome is maintained operational stability and protected trust during periods of uncertainty.

Future-proofing cross-border payments

Generating over $300 billion annually, cross-border payments are a natural starting point for joint discussions between risk, treasury, and payments teams. While political risk cannot be controlled, its impact on cross-border payments can certainly be managed by systems built for optionality, allowing choice in routes and partners when optimised rails are unavailable.

With guard rails in place, having a choice can bring stability during turbulent periods. However, the most effective safeguards are implemented before they are required, not after a disruption enforces them. Banks that get ahead of geopolitical risks early are better positioned to remain resilient and protect client and regulator trust in times of insecurity.

If you are ready to explore future-proof cross-border payments, contact us.