What is prefunding?

Definition

Prefunding is capital parked in a destination market before payouts happen there, so local payments can go out without waiting for cross-border settlement to catch up.

The mechanics are simple. A payment company estimates how much it will pay out in each corridor, wires that money into nostro accounts days ahead, and tops the balances up as they run down. Buffers are sized for peak days plus settlement lag, not for the average day, and every corridor needs its own buffer because a surplus in pesos cannot cover a shortfall in reais.

The cost is the funding rate on all of that idle money, plus FX exposure on every non-dollar balance, plus the operations time spent forecasting and rebalancing. It exists for one reason: settlement on bank rails is slow. T+2 settlement means payout money is committed before it arrives. Stablecoin settlement closes that gap to minutes, which removes the reason to park capital at all. The full argument, with a worked example and a calculator, is in our guide: How to eliminate nostro prefunding with stablecoins.

Related terms

Trapped capitalTrapped capital is money a business must hold idle inside its payment operations, in prefunded accounts, in-transit balances, and safety buffers, where it cannot be used for anything else.Nostro accountA nostro account is an account a bank or payment company holds at a bank in another country, denominated in that country's currency, so it can make local payments there.T+2 settlementT+2 settlement means a trade finalizes two business days after the day it is executed: T is the trade date, and the number counts the business days until money actually moves.

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