Onboarding with FXPs

Every Nexus payment relies on an FX Provider (FXP), who:

• Holds funds in two payment systems – the Source IPS (the instant payment system in which the Sender’s PSP is a member), and the Destination IPS (the instant payment system in which the Recipient’s PSP is a member), and

• Quotes an exchange rate at which it is willing to swap the Source Currency (the sender’s currency) for the Destination Currency (the recipient’s currency)

Each corridor (pair of currencies) will have one or (ideally) more FXPs who will compete to offer the best rate for that currency pair. PSPs are free to select any FXP, as long as they have first onboarded with that FXP.

In the case that the PSP is also an FX Provider, the PSP-FXP can select themselves to act as the FX Provider for their own payments. See PSPs who are also FXPs.

For a specific Nexus payment, the FXP is effectively trading with the Source PSP by selling them the Destination Currency. This means the PSP is a corporate customer of the FXP. The FXP therefore has a regulatory obligation to complete due diligence (Know Your Business, KYB) on a PSP before it can provide FX conversion to that PSP.

A PSP can therefore only select quotes from FXPs with which it has completed the due diligence process.

• Nexus will publish the list of FXPs and the IPSs to which those FXPs connect. The PSP must approach those FXPs bilaterally to initiate the onboarding and KYC process with the FXP.

• Once the FXP has completed due diligence on a PSP, it will inform Nexus (via the Nexus administration portal or APIs) that it is willing to provide FX to that PSP.

• When generating quotes in response to the GET /quotes/ API operation, Nexus will identify the quotes for which the FXP has approved the PSP.

  • Nexus will also include rates from other FXPs so that PSPs can see if other FXPs offer better rates; if so, the PSP may wish to onboard with additional FXPs.

The proof-of-concept version of Nexus does not validate whether an FXP has approved a PSP. This functionality would need to be added to a production version.

Streamlining the PSP onboarding process

To ensure the FX market in Nexus is competitive, it is best if each PSP in an IPS is onboarded with each of the FXPs that provide FX in the PSP’s home currency. This means a PSP must apply to be onboarded with multiple FXPs, and each FXP must onboard multiple PSPs.

One challenge is that this due diligence can result in many KYB processes with significant duplication of effort. Some possibilities to streamline this onboarding process are outlined in FXP onboarding of PSPs.