How FX provision works in Nexus

Rates vs Quotes

In Nexus, a rate refers to the rate at which an FXP is currently willing to exchange one currency for another. A rate is not specific to a single transaction or PSP. Rates are valid until an FXP sends an updated rate.

Nexus uses rates uploaded by the FXP to generate quotes which are provided to Source PSPs whenever they call the GET /quotes/ API operate. Quotes are specific to the PSP making the request, and are valid for a set period of time (a few minutes).

The Source PSP must reference the Quote ID in a payment instruction (pacs.008) so that Nexus can verify the exchange rate specified before it forwards the payment instruction to the Destination Country.

An overview of the process for generating and processing rates and quotes is given in detail below. Further details are given in later sections.

Step 1: FXPs provide rates to Nexus

  • An FXP uses the POST /rates/ API to inform Nexus of the (base) rate at which they are willing swap the Source Currency (the Sender’s currency) for the Destination Currency (the Recipient’s currency).

    • A rate in Nexus describes the ‘going rate’ at which an FXP is willing to swap one currency for another.

    • The rate is not specific to a single transaction. FXPs are not asked to quote or bid on individual transactions. This means that when an FXP provides a rate to Nexus, they are effectively saying “Until further notice, for any Nexus payment, I’m willing to exchange Currency A for Currency B at exchange rate X”. “Further notice” is given when the FXP sends another revised rate via the POST /rates/ API.

    • An FXP can define whether larger transactions qualify for improved rates (See Tier-based improvements). Each FXP can set their own tiers with minimum thresholds at which a transaction qualifies for a specific improvement.

    • An FXP can also instruct Nexus to improve the rates it offers to specific PSPs (See PSP-based improvements).

Step 2: Nexus provides quotes to PSPs

When a Sender initiates a payment, the Source PSP will ask Nexus for quotes for that specific corridor.

  1. Nexus will retrieve rates from all FXPs that provide FX to that corridor

  2. For each FXP's rate, Nexus will apply any improvements that apply based on the size of the transaction (tier-based improvements) or the requesting PSP (PSP-based improvements).

  3. Nexus generates a list of payment-specific quotes with unique quote IDs. Each quote describes a specific rate (with any improvements already applied) offered to a specific PSP by a specific FXP for a specific corridor (pair of currencies).

  4. A PSP can select a quote from any FXP, as long as they have completed an initial KYC process with that FXP.

  5. The rate provided to the Source PSP is the rate that the FX Provider charges to the Source PSP. The Source PSP could choose to mark up this rate before displaying it to the Sender.

Step 3: Payments are processed against a specific quote

  • Assuming that the Sender accepts the final exchange rate offered by their PSP, the Source PSP will initiate a payment instruction by sending a pacs.008 message to the Source IPS.

    • The message will include the quote ID so that Nexus can validate that the exchange rate included in the pacs.008 is correct.

  • As the payment is processed, the FXP will:

    • Receive funds from the Source PSP via the Source IPS

    • Pay out funds to the Destination PSP via the Destination IPS

  • When the payment is completed, the FXP holds more of the Source Currency and less of the Destination Currency in its accounts in the Source IPS and Destination IPS respectively.

From the perspective of the FXP, this process is equivalent to a trade where they buy (receive) the Source Currency and sell (pay out) the Destination Currency. Because the FX Provider is selling one asset (the Destination Currency) for another (the Source Currency), the FXP gets to determine the “price” ie. the FX rate at which it is willing to swap those assets.

In a conventional FX trade, the FXP would “deliver” the Destination Currency to the buyer (in this case, the Source PSP). However, in Nexus, the FXP delivers the Destination Currency directly to the Destination PSP. This enables the Source PSP to make a payment to the Destination PSP, even though the Source PSP never directly holds the Destination Currency.

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