19 Responses to Strategy #2 to understand how cross border payments work

  1. Venkatesh Sourirajan June 20, 2018 at 3:55 pm #

    Amazing..very nicely put

  2. pramod November 9, 2018 at 6:50 am #

    Very informative. I have been searching something like this for many years and finally my search ends!

    • Jean Paul November 9, 2018 at 9:27 am #

      Thank you. I am glad you finally found what you have been looking for. 🙂

  3. Vishwa November 27, 2018 at 9:44 am #

    Dear Jean,

    Amazing work you are doing. I will be purchasing your SCT book soon. This is the kind of information every payments professional was looking for

    • Jean Paul November 27, 2018 at 10:47 am #

      Dear Vishwa,

      Thank you for your nice comment and appreciation. My goal is to help as many as possible and make their payments journey easy.
      I am very happy you find my content valuable. I will send you a email about the book.

  4. Omri Perl December 17, 2018 at 3:27 pm #

    Phenomenal article! Thanks 🙂
    What about writing a blog on Ripple?

    • Jean Paul December 17, 2018 at 3:34 pm #

      Thank you. 🙂 I started with traditional payment instruments and systems. The time will come to write about Cryptocurrencies and Blockchain. Be patient.
      You can subscribe to the newsletter to get regular updates. 🙂

  5. Swapnil January 15, 2019 at 5:27 am #

    Thanks a million Jean, this is very useful, I like the way you articulated here….you have made it very interesting to read and with diagram…Great Job

    • Jean Paul January 15, 2019 at 11:08 am #

      Thank you Swapnil for your appreciation. You see I deliver my promise. If you follow my blog, you will acquire payments easier and faster. 🙂

  6. Milind January 29, 2019 at 5:34 am #

    Dear Jean,
    Thanks for such an informative article. One query. Your diagram and description says that “When a customer opens an account in USD Dollar with BNPP, BNPP opens an account in its book in USD. But the (real) funds are kept on the Nostro account(s) in the USA.”

    How does it take place? How can bank credit the Nostro account based on the credit in the savings/current account? Funds will be credited to Nostro account only when customer initiates funds transfer, right? and Bank will pass the accounting entry in its own books as Debit Customer account Credit Nostro Mirror.

    Can you please clarify this?

    • Jean Paul January 29, 2019 at 10:50 pm #

      Dear Dangare,
      Thanks for your appreciation. I will try to answer your question. Let’s assume you open an account in USD with BNPP in France.
      To credit your account, you can either buy USD (against EUR) or receive it from someone.
      In any case, you provide the account where the funds should be credited (IBAN and BIC of BNPP).
      The sending USA bank sees that the beneficiary Bank BIC is BNPP. So it will look for the correspondent of BNPP in the USA and sends him the funds to credit BNPP account.
      However in the MT103, the beneficiary customer (you) is mentionned. The USA correspondent of BNPP after crediting BNPP account, informs BNPP with a MT103 for example that funds are for you. Your account with BNPP is then credited. But the real funds are with the correspondent of BNPP in the USA.

      • Milind February 1, 2019 at 5:34 am #

        Thank you Jean!


      • Marcin March 15, 2019 at 5:22 pm #

        Dear Jean,

        I have a question pertaining to the below sentence from your response to Milind:

        “The sending USA bank sees that the beneficiary Bank BIC is BNPP. So it will look for the correspondent of BNPP in the USA and sends him the funds to credit BNPP account.”

        Do you maybe know how sending USA bank looks for the correspondent of BNPP exactly? Using sample from your article, how can it know that correspondent of BNPP is Citi and not any other bank in USA?


        • Jean Paul March 17, 2019 at 11:26 pm #

          Hi Marcin,

          Banks exchange information among themselves called Standing Settlement Instructions (in SWIFT MT670 and MT671 Messages) where they provide information about their correspondents in the different currencies. That information is stored in payment engines Databases and used to find out to which correspondent to send USD for example for a specific bank.
          Let me know if you have additional question.

          Jean Paul

          • Marcin March 19, 2019 at 8:27 am #

            Thank you, Jean!


  7. Namo February 6, 2019 at 3:27 pm #

    Great stuff, one basic question on correspondent banks. Can the correspondent bank of the originator be in the same country as the originator and same goes for the beneficiary?
    eg- Bank A in SG wants to transfer payments to US –
    approaches a local correspondent bank XYZ who has a bilateral relationship with correspondent bank ABC in USA in turn beneficiary bank’s MNM correspondent bank –
    so XYZ and ABC will maintain nostro/vostro accounts – is that correct?
    But is the bank XYZ called as correspondent bank or intermediary bank for bankA’s perspective since they are in the same country?

    • Jean Paul February 7, 2019 at 9:02 pm #

      Thank you! The answer to your question is yes. What you describe is common in practice.
      Small banks use services of large banks which have a large correspondent network to settle transfers in foreign currencies.
      Setting up and maintaining a correspondent network is costly and time consuming. So large banks can offer services to smaller banks to make some revenues. Like any customer, a small bank in SG can open an account in currency with a large bank in SG that has a correspondent in the USA. However, as explained in the article, the funds (USD) are kept on an account in the country of currency (so in the USA). To credit the USD account of the small bank in SG, you have to send money to the large bank in SG and for that, the account of the large bank in the USA must be credited. But the ultimate beneficiary will be the small bank.

      In cross border transfers, the large bank is usually referred to as intermediary bank. But strictly speaking it is the correspondent bank of the small bank. Correspondent is used for banks located in the foreign currency zone.

  8. Rohan March 5, 2019 at 8:22 pm #

    Can you explain difference between NOSTRO/ NOSTRO Mirror & Vostro/Vostro Mirror..

    Are nostro and nostro mirror maintained in same or different currencies..

    Per my understanding by substantiating with an example:-

    HDFC Bank in Mumbai wants to make a Cross border payment to Bank of America US..

    As HDFC Bank has a NOSTRO account denominated in USD currency hence it does the payment..

    However to have records of this transaction its own book of accounts, HDFC has a NOSTRO Mirror account in INR currency.

    This is my understanding.

    Kindly confirm if you concur on same..

    • Jean Paul March 6, 2019 at 10:39 pm #


      Let’s consider two banks: Bank A has opened an account with Bank B.
      The Nostro account of Bank A is in the book of Bank B, but the mirror Nostro is in the book of Bank A.
      The mirror Nostro does not hold any funds. It is just an account opened by Bank A to easily follow what is happening on the real account with Bank B.
      If I refer to your example, HDFC can have a NOSTRO Mirror account in any currency, but the currency chosen will be the currency of the real account, so USD in this case.
      It does not matter really what the currency of the mirror nostro is. What matter is the currency of the real account, the Nostro account.
      A mirror gives the faithful image of a person or a thing, but it is not the real person or thing. Similarly, a mirror account gives the image of an account, but it is not the real account itself. However, if you know what is happening on a mirror account, you can easily deduce what the movements on the real account should be.
      I hope this clarifies.

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