Key Points

This section describes:

• how FX conversion can be provided either by the Source PSP (in certain cases) or by third-party FX Providers (FXPs)

• how third-party FXPs submit rates to Nexus

• how Nexus uses these rates to generate quotes and supply those quotes to PSPs

• the obligations on third-party FX Providers

• how the FX rate is validated when Nexus processes a payment

60-SECOND SUMMARY

• Every cross-border, cross-currency payment requires an actor who is willing and able to exchange one currency for another. In Nexus, the entity providing this service plays the role of FX Provider (FXP).

• In some cases the Source PSP will act as FX Provider for its own payments. This can happen when:

  • the Source PSP is a participant in both the Source IPS and the Destination IPS for a specific corridor, or

  • the Source PSP holds the destination currency in an account with another PSP in the Destination Country, and that PSP is willing to act as Settlement Account Provider (described later) to the Source PSP.

• When a Source PSP acts as an FX Provider to itself, it can determine the FX rate for each payment and specify this FX rate in the payment instruction. It does not need to inform Nexus of the FX rate in advance.

• In other cases, the Source PSP will make use of a third-party FX Provider. A third-party FX Provider is any financial institution who provides FX conversion for the payments of another PSP. Source PSPs will need to use third-party FXPs when:

  • the Source PSP is not a participant in the Destination IPS, and

  • the Source PSP does not hold the destination currency in an account in the Destination Country.

• Third-party FXPs would be regulated financial institutions that are willing to accept the Source Currency from the sender and pay out the Destination Currency to the recipient.

• A third-party FX Provider must be a licensed and regulated entity but does not necessarily need to be a bank or non-bank Payment Service Provider.

• Third-party FX Providers must inform Nexus of the current rates at which they are willing to exchange one currency for another.

  • Nexus does not ask third party FXPs to bid on individual payments. Instead, Nexus uses the rates provided by FXPs to generate quotes which are provided to PSPs at the point that a Sender sets up a payment.

  • An FXP may choose to improve their rates for larger payments. For each currency, the FXP will inform Nexus of the tiers and thresholds at which better rates start to apply, and by how much the rate must be improved. Nexus will automatically calculate any improvements for larger payments and apply them to the quote given to the Source PSP.

  • An FXP may choose to improve rates for specific PSPs. The FXP will inform Nexus of the PSPs it wishes to deal with, and by how much rate must be improved for that FXP. Nexus will automatically calculate any improvements applicable to each PSP.

• Each payments corridor between two countries and currencies must have one or more third-party FX Providers, who are in competition with each other to provide the best rates.

• Settlement Account Providers (SAPs) are existing PSPs who are willing to provide accounts to:

  • third-party FX Providers who are not members of the IPS, and/or

  • Source PSPs in another country.

• SAPs are important because they ensure that FX provision in Nexus is not limited to large international banks who are members of two or more instant payment systems. SAPs help to open FX provision in Nexus to a wider range of financial institutions, including non-bank, non-PSP financial institutions who are not eligible to become IPS members.

• There may be multiple FXPs per IPS and per corridor, and multiple SAPs per IPS. The FXP is responsible for selecting the SAP they wish to use.

• Scheme adherence: Third-party FX Providers (ie those who provide FX to other PSPs) must be direct participants in the Nexus scheme. (Source PSPs who only provide FX conversion for their own payments – but do not act as a third-party FX Provider to other PSPs – may remain as indirect participants in Nexus, as per any other PSP.)

• Fees & Costs: Third-party FX Providers need to offer an FX rate that is sufficient to cover all their own costs and required profit margin. FXPs are not permitted to charge a fee or make a deduction from the value of the payment transferred.

  • If the FXP holds accounts at SAPs, it will need to pay fees to those SAP; these fees are negotiated bilaterally between the FXP and the SAP.

• Communication with Nexus: FXPs communicate with Nexus Gateways directly, sending API requests via HTTPS over the internet.