set-up models: liquidity and infrastructure ... - ripple · ripple's flexible payments...

Set-up Models:Liquidity and Infrastructure Provisioning

Ripple's flexible payments solution for banks, xCurrent, provides the ability to modernize settlement and messaging for cross-border payments. xCurrent also enables our customers to adapt to the unique liquidity and infrastructure needs of their financial institution.

This document overviews Ripple's supported set-up models, which include different ways of provisioning liquidity and infrastructure for cross-border payments on RippleNet.The supported set-up models demonstrate how the following liquidity and infrastructure relationships and entities are included in various xCurrent deployments:

• Direct liquidity relationships• Credit relationships • Third-party liquidity providers• Payment providers • Service bureaus • Correspondent banks

This document provides detailed information regarding how cash settlement mechanisms work in coordination with xCurrent’s real-time ledger updates. This document focuses on the following key components across all the supported set-up models:

Account sequence for flow of funds: The money movement across various accounts at the transacting banks

Funding mechanism: The different liquidity provisioning arrangements’ impact on the various set-up models

Technology required: The required components of xCurrent (Messenger, ILP Ledger, FX Ticker and Validator) for each transacting party

2

The account sequence for the flow of funds is as follows: After the originator initiates the payment, funds are transferred from the originator's account to the originating bank’s treasury account (1). ILP Ledgers of both banks are simultaneously updated with a credit of the transaction amount to the beneficiary bank. The funds are then transferred from the originating bank’s nostro account to the beneficiary's account (2).

For the funding mechanism, the originating bank prefunds its nostro in the beneficiary country’s currency via bulk FX purchase through a one-time, out-of-band transaction. Regarding the technology required, as the liquidity provider, the originating bank requires ILP Ledger, Messenger, FX Ticker and Validator. The beneficiary bank requires ILP Ledger and Messenger.

Originating Bank’s LiquiditySet-up Model 1a: This model is utilized when the originating bank provides FX liquidity at the beneficiary bank.

FUNDING MECHANISM:

- Prefunded nostro account- Prefund and redemption via bulk FX purchase

CROSS-BORDER FLOW

REQUIRED xCURRENT COMPONENTS

ORIGINATING BANK (GBP)

Originator’s Account

Originating Bank’sTreasury Account

1

ILP Ledger

Messenger

ILP


BENEFICIARY BANK (EUR)

Originating Bank’sNostro Account

Beneficiary’s Account

ILP Ledger

Messenger

FX Ticker

Validator

ILP

2

3

The account sequence for the flow of funds is as follows: After the originator initiates the payment, funds are transferred from the originator's account to the beneficiary bank’s nostro account (1).ILP Ledgers of both banks are simultaneously updated with a credit of the transaction amount to the beneficiary bank. The funds are then transferred from the beneficiary bank’s treasury account to the beneficiary's account (2).

For the funding mechanism, the beneficiary bank establishes a nostro/vostro relationship with the originating bank (money stays with beneficiary bank and is being held on behalf of the originating bank for local pay out).

FUNDING MECHANISM:

- Nostro account setup- Redemption via bulk FX transaction

CROSS-BORDER FLOW




Beneficiary Bank’sNostro Account

1

ILP Ledger

Messenger

ILP




Beneficiary Bank’sTreasury Account

ILP Ledger

Messenger

FX Ticker

Validator

ILP

2

Beneficiary Bank’s LiquiditySet-up Model 1b: This model is utilized when the beneficiary bank provides FX liquidity at the originating bank.

4

The account sequence for the flow of funds is as follows: After the originator initiates the payment, funds are transferred from the originator's account to the originating bank’s treasury account (1). Each bank’s credit position is then updated on both bank’s ILP Ledgers with their respective debits and credits based on the exact transaction amount (2). The funds are then transferred from the beneficiary bank’s treasury account to the beneficiary's account (3).

For the funding mechanism, both transacting banks establish a credit relationship based on either daily or credit limit settlement. Regarding the technology required, each transacting bank runs all components: ILP Ledger, Messenger, FX Ticker and Validator.

FUNDS FLOW:

- Credit line at each transacting bank- Settled on deferred net basis

CROSS-BORDER FLOW





Credit Line forBeneficiary Bank

1

ILP Ledger

Messenger

FX Ticker

Validator

ILP





Credit Line forOriginating Bank

3

ILP Ledger

Messenger

FX Ticker

Validator

ILP

2

Credit LinesSet-up Model 1c: This model is utilized when the transacting banks have established a credit line with one another.

5

The account sequence for the flow of funds is as follows: After the originator initiates the payment, funds are transferred from the originator's account to the originating bank’s treasury account (1). ILP Ledgers of the originating bank and payment provider are simultaneously updated with a credit of the transaction amount. The payment provider then sends a payment directly to the beneficiary’s account through local rails (2).

For the funding mechanism, the originating bank opens an account with the payment provider, prefunding it in the beneficiary country’s currency. The payment provider utilizes local rails to pay out to the beneficiary bank. Regarding the technology required, as the liquidity provider, the originating bank requires ILP Ledger, Messenger, FX Ticker and Validator. The payment provider requires ILP Ledger and Messenger.

FUNDING MECHANISM:

Prefunding from originating bank topayment provider in beneficiary’scurrency via bulk FX purchase

FUNDING MECHANISM:

Payment delivery from paymentprovider’s bank account tobeneficiary’s account via local rails

PAYMENT PROVIDER (EUR)

Originating Bank’sAccount with Payment Provider

CROSS-BORDER FLOW

LOCAL RAIL FLOW





1

ILP Ledger

Messenger

FX Ticker

Validator

ILP

NOT RIPPLE-ENABLED



2

REQUIRED COMPONENTS OF xCURRENT

ILP Ledger

Messenger

ILP

Payment Provider and Non-Ripple-enabled BeneficiarySet-up Model 2a: This model is utilized when the originating bank provides liquidity and a payment provider is leveraged for paying out to the beneficiary bank.

6

The account sequence for the flow of funds is as follows: After the originator initiates the payment, funds are transferred from the originator's account to the originating bank’s treasury account (1). ILP Ledgers of the originating bank and payment provider are simultaneously updated with a credit of the transaction amount. The payment provider then sends a payment directly to the beneficiary’s account from the originating bank’s account at the payment provider (2).

For the funding mechanism, the originating bank opens an account with the payment provider – prefunding it in the destination currency. The payment provider utilizes local rails to pay out to the beneficiary bank. Regarding the technology required, since the originating bank is the liquidity provider, the service bureau requires ILP Ledger, Messenger, FX Ticker and Validator (all of which would be hosted on behalf of the originating bank). The payment provider requires ILP Ledger and Messenger.

FUNDING MECHANISM:

Prefunding from originating bank topayment provider in beneficiary’scurrency via bulk FX purchase

FUNDING MECHANISM:

Payment delivery from paymentprovider’s bank account tobeneficiary’s account via local rails

SERVICE BUREAU

REQUIRED COMPONENTSOF xCURRENT

NOT RIPPLE-ENABLED

PAYMENT PROVIDER (EUR)

Originating Bank’sAccount with Payment Provider

ILP Ledger

Messenger

ILP

CROSS-BORDER FLOW

LOCAL RAIL FLOW




1

2BENEFICIARY BANK (EUR)



ILP Ledger

Messenger

FX Ticker

Validator

ILP

Service Bureau and Payment ProviderSet-up Model 2b: This model is utilized when the originating bank provides liquidity, requires a service bureau to host their xCurrent instance and leverages a payment provider to pay out to the beneficiary bank.

7

The account sequence for the flow of funds is as follows: After the originator initiates the payment, funds are transferred from the originator's account to the liquidity provider’s GBP account at the originating bank (1). The balance of the liquidity provider’s GBP account at the originating bank is updated with a debit of the transaction amount. Simultaneously, the liquidity provider’s EUR account at the beneficiary bank’s ILP Ledger is updated with a credit of the transaction amount. The funds then move from the liquidity provider’s EUR account to the beneficiary’s account (2).

For the funding mechanism, the liquidity provider opens an account with both transacting banks – prefunding them in their respective local currencies. Regarding the technology required, the originating bank requires ILP Ledger and Messenger. The beneficiary bank requires ILP Ledger and Messenger. Since the liquidity provider is only serving to provide liquidity rather than acting as an intermediary, it requires FX Ticker and Validator.

FUNDING MECHANISM:

Prefunding from liquidityprovider’s bank account to originating bank via local rails

REQUIRED COMPONENTS OF xCURRENT

LIQUIDITY PROVIDER

FX Ticker

Validator

FUNDING MECHANISM:

Prefunding from liquidityprovider’s bank account to beneficiary bank via local rails



Liquidity Provider’sGBP Account

CROSS-BORDER FLOW


ILP Ledger

Messenger

ILP


ILP Ledger

Messenger

ILP

1



Liquidity Provider’sEUR Account

2

Third-party LiquiditySet-up Model 3: This model is utilized when transacting banks elect to use a third-party liquidity provider.

The account sequence for the flow of funds is as follows: After the originator initiates the payment, funds are transferred from the originator's account to the correspondent bank’s nostro account at the originating bank (1). ILP Ledgers of all banks are simultaneously updated to reflect a credit of the transaction amount to the beneficiary bank (2). The funds then move from the beneficiary bank’s treasury account to the beneficiary’s account (3).

For the funding mechanism, the originating bank establishes a liquidity relationship with the correspondent bank (the funds remain in the

correspondent bank’s treasury account to enable pay out to the beneficiary bank). The beneficiary bank establishes a liquidity relationship with the correspondent bank (seen here as a nostro account at the correspondent bank, which is prefunding liquidity at the beneficiary bank).

Regarding the technology required, the originating bank requires ILP Ledger, Messenger, FX Ticker and Validator. The correspondent bank requires ILP Ledger and Messenger. The beneficiary bank requires ILP Ledger, Messenger, FX Ticker and Validator.

FUNDING MECHANISM

Account relationship between originating bank and correspondent bank

FUNDING MECHANISM

Account relationship between beneficiary bank and correspondent bank

ORIGINATING BANK (GBP) BENEFICIARY BANK (EUR)





CORRESPONDENT BANK (EUR)

Originating Bank’s Nostro Account

Beneficiary Bank’sNostro Account

CROSS-BORDER FLOW

LOCAL RAIL FLOW

REQUIRED xCURRENT COMPONENTS REQUIRED xCURRENT COMPONENTS REQUIRED xCURRENT COMPONENTS

ILP Ledger

Messenger

ILP ILP Ledger

Messenger

FX Ticker

Validator

ILPILP Ledger

Messenger

FX Ticker

Validator

ILP

1 2 3

Correspondent Banking (Q1 2018)Set-up Model 4: This model is utilized when transacting banks leverage a common correspondent banking relationship.

set-up models: liquidity and infrastructure ... - ripple · ripple's flexible payments...

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