Ensuring a Competitive FX Market

FX Providers are in competition with each other to provide the best exchange rates. In many cases, Source Banks will simply ask for the best available rate (using the BEST method for the Quote API), which means that the FX Provider offering the best quote will become committed for that payment. Other FX Providers will not be committed unless they offer better rates. This creates a competitive dynamic, ensuring that FX rates offered through Nexus will change in response to demand and supply.
Note that whenever an FX Provider sends a quote update to Nexus, the return message includes a list of all current quotes for that currency pair. This allows each FX Provider to see the market rates on Nexus and to adjust their rates if necessary. (The FX Provider can also use the GET Quote API, using the LIST parameter, to see all quotes available at any time, without updating quotes.)
To have competitive pricing, there must be more than one FX Provider for a specific channel. Without this, the sole FX Provider will have a monopoly on that channel. Rates in this case will be less competitive (although users could switch to using other payment methods, so there is still some competitive pressure on the FX Provider).
FX rates in Nexus should keep broadly in line with rates in wider FX markets. This is because FX Providers in Nexus are likely to be active in other FX markets. If Nexus rates were significantly higher than other FX markets, FX Providers would reallocate funding towards the Nexus market, increasing supply and pushing down rates. Likewise, if Nexus rates were significantly lower than other FX markets, they would reallocate funding away from Nexus and towards other markets, reducing supply and pushing up rates.
Of course, Nexus payments are low value, high volume. For this reason, rates via Nexus will not be as attractive as rates in large value markets where single payments may be tens of millions.
In many cross-border payments between smaller currencies, the Source Currency is first converted into a third currency – often the US dollar – which is then converted into the Destination Currency. Nexus does not currently provide this “third currency” mechanism; the FX Provider must swap the Source Currency directly for the Destination Currency. This may mean that certain, less common currency pairs suffer from having only one FX Provider (or even none). Providing a third-currency route for Nexus payments is not impossible, but it does add significant complexity. It would require payments to be made in three IPSs, may require more than one FX Provider and may extend payment times well beyond the target 60 seconds.