From Scattered Prefunding to Centralized Collateral: A Smarter Approach to Cross-Border Liquidity

How much of your capital is sitting idle in prefunded accounts around the world?

For banks and payment service providers (PSPs), ensuring liquidity is available across markets has traditionally meant maintaining prefunded balances with multiple banking partners. Capital is committed to individual markets, often sitting unused while it could be supporting payments or business growth elsewhere.

And the cost goes beyond the capital itself. Multiple accounts bring operational complexity, recurring funding costs and additional capital requirements as institutions expand into new markets.

Traditional Prefunding: Capital Scattered Across Markets

In traditional cross-border payments, banks and PSPs typically maintain prefunded accounts with banking partners in the markets they serve. Each account needs sufficient funds to support expected payment volumes, often with additional buffers to handle peaks in demand.

The challenge is that liquidity becomes fragmented. Funds held in one market cannot readily support payments in another, even when they are temporarily sitting idle. As a result, an institution may have sufficient liquidity overall but still need to transfer additional funds to cover payment activity in a particular market.

This fragmentation also creates operational demands. Balances must be monitored, accounts reconciled and funds regularly replenished, generating additional banking and transfer costs.

One Central Collateral Position Across Markets

What if liquidity no longer had to be allocated separately to every market and payment corridor?

Centiglobe Connect takes a different approach. Instead of maintaining scattered prefunded balances across multiple banking partners, members use one central collateral position to support payments across markets and corridors.

Payments take place directly between members of the Centiglobe network, without intermediary chains. The underlying collateral is held as bank deposits with an independent third-party bank, rather than being distributed across multiple payout partners.

Direct Access to Local Specialists, Without Intermediaries

A more efficient funding model is only part of the opportunity. Another important benefit is the flexibility to choose who you work with in each market.

With Centiglobe's network model, one connection provides access to local payment specialists, allowing banks and PSPs to establish direct commercial relationships with the counterparties best suited to their needs. This can include working with different members across markets, or several within the same market.

This provides greater flexibility in selecting payment partners based on local capabilities and terms. Having alternative counterparties also reduces dependency on individual providers and strengthens resilience through additional payment routes.

What Changes? The Capital and Liquidity Benefits

The real opportunity is not simply to manage liquidity differently. It is to reduce how much capital needs to be committed to supporting cross-border payments in the first place.

Free up capital for growth. Reducing the need for separate prefunded balances and buffers across markets can significantly reduce capital tied up in cross-border payments. These funds can instead support business growth, including expansion into new markets without the same need for additional prefunding.

Make better use of available liquidity. With centralized collateral, the same position can support payment activity across markets and corridors, reducing the need to maintain separate liquidity buffers for each market.

Reduce counterparty exposure. Traditional prefunding can require institutions to hold substantial balances with multiple banking and payout partners, including in markets where they may prefer to limit their financial exposure. Centiglobe's model reduces the need to distribute funds across these counterparties. Instead, the underlying collateral is held as bank deposits with a major, highly rated international bank acting as an independent third-party custodian. This allows institutions to access payment capabilities in different markets without necessarily holding funds with local payout partners.

Simpler Operations and Easier Growth

Simplify operations and reduce costs. Fewer separate balances mean less monitoring, less reconciliation and fewer transfers between accounts - simplifying liquidity management and lowering operational costs.

Easier expansion into new markets. Traditionally, entering a new market often means establishing additional banking relationships, arranging local prefunding and allocating capital before payment services can begin. The network model allows institutions to expand their reach without building separate funding arrangements for every new corridor.

What Changes with Centralized Collateral?

Rethinking Cross-Border Liquidity Management

For years, scattered prefunding has been an established way to support cross-border payments. But as payment volumes grow and institutions expand into new markets, it is worth questioning whether tying up capital across multiple accounts remains the most efficient approach.

Centralized collateral changes that: one collateral position supporting direct payments across markets and corridors, reducing funding requirements, counterparty exposure and operational complexity.

Want to understand what this could mean for your business? Explore Centiglobe's Cross-Border Liquidity Efficiency Assessment to assess your current setup and identify potential improvements.