What are local rails, and what are their benefits?
In this article, we’ll dive deeper in the structure of our Multi-Currency Accounts, and the payment rails available. You may have noticed that we refer to them as Corpay’s “Multi-Currency Accounts,” not simply as a “Multi-Currency Account.” I will explain that too.
Account structure and capabilities
London is currently the largest foreign exchange hub in the world, followed by New York and Singapore. Because of that, we decided to domicile most of the currencies in our Multi-Currency Accounts offering in London.
To break it down: for most of the currencies on the Right-Hand (the ‘ask’) side—for example, the South African rand (ZAR) and Swedish krona (SEK) and UAE dirham (AED), among others—we provide access to an account that's based in London to send and receive payments. The euro is the exception—the euro in our MCA is domiciled in Frankfurt (Germany), so it has local connectivity. The currencies on the Left-Hand side (the ‘bid’) have full local connectivity, and we offer additional choices for some of these.
For the US dollar, we offer two options: an account based in New York, and an account based in London.
Why it matters where the account is based
I’ll start with the clear differences in capabilities between a US dollar account in London and a US dollar account in New York.
The key difference is ACH connectivity.
That is the ability to connect to the local in-country payment rail network in each jurisdiction. It doesn't matter where you are in the world: if your account is not domiciled in-country, in that jurisdiction, you cannot connect to that local payment network.
The benefits of a US-domiciled USD account for global businesses
The same is true for the US dollar. If you need access to ACH payments to send or receive US dollars, you need to have an account based in the United States. For us, it's New York.
It is your choice where you want to have your US dollar account if you use our Multi-Currency Accounts. It could be New York or London, or both.
Here is the rationale.
Say I would like to have a US dollar account to collect and to receive--US dollars. With an account based in the United States, I can access both ACH payment rails and SWIFT wire payments.
When I am conducting international business in US dollars with US customers, I pay fewer lifting charges, fewer correspondent banking charges.
At the same time, it's more cost-effective to receive US dollar payments from international markets if I receive those US dollars in London than to have those payments come all the way to the United States.
Similarly, when I'm processing outbound payments, and I'm sending US dollars internationally (especially to the UK or the Europe), I want to originate those payments from a US dollar account domiciled in the UK or Europe. Again, it results in fewer lifting charges, fewer correspondent fees, and a faster overall payment process.
So for US dollars, we offer both London and New York. For euros and sterling, we domicile these in the domestic market: London for sterling and Frankfurt for our euro accounts.
The euro arrangement provides connectivity to SEPA, the European equivalent of the ACH scheme. SEPA is the way that you process in-country payments in Europe.
So you can send and receive payments in Europe via the in-country rail network, which costs pennies per transaction rather than euros per transaction.
That’s also a key benefit for pound sterling domiciled in London. Your account is connected to both the CHAPS network, the equivalent of the Fedwire network in the US, as well as to the UK’s Faster Payments Service (FPS). This access allows you to send and receive in-country payments for pennies or pence per transaction rather than dollars or pounds per transaction.
The key benefits of having access to local payment connectivity, to in-country payments versus SWIFT wire payments, are cost and speed.
When you send a payment via in-country or low-value in-country methodology, it's a guaranteed funds transfer. So the exact amount that you send will show up in the beneficiary bank account and it's guaranteed to arrive on the actual credit date on which you intended it.
Let’s talk a bit now about SWIFT payments.
Oftentimes they may actually be faster. If you process a SWIFT payment via a direct methodology that doesn't have to go through a correspondent or intermediary bank, it can arrive in minutes.
But I think we've probably all experienced situations when we send a SWIFT wire and it shows up a week later, or two weeks later, depending on the jurisdiction to which you're sending that payment. If you're sending it to Nigeria, for example, it might be months before the funds actually credit.
Again, the benefit of having in-country connectivity is speed, efficiency, guaranteed full-value transfer, and on-time delivery.
What we're ultimately trying to do is to build a network to make available as many currencies as possible, all with the same routing instructions, the same IBAN, the same SWIFT code or derivation thereof, the same account number, the same beneficiary bank address.
So, you can use those same payment instructions to receive current payments in multiple currencies all into one single account. Those payments are then segregated by currency on our platform.
Click here to read the previous article in the series.
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