What is trapped capital?

Definition

Trapped 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.

In cross-border payments it hides in three places: prefunded nostro balances waiting for payouts, float sitting in transit between banks, and buffers sized for peak volume that spend most of the year unused. Combined, they can reach a meaningful share of a payment company's working capital.

The scale is industry-wide. Oliver Wyman and J.P. Morgan estimate that global corporates move about 23.5 trillion USD across borders each year and pay over 120 billion USD in transaction costs to do it, a figure that excludes the hidden cost of trapped liquidity and delayed settlement (Oliver Wyman, 2021). For your own number, the prefunding cost calculator estimates trapped capital and annual carry cost from corridor count, payout volume, and buffer days.

Related terms

PrefundingPrefunding 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.FloatFloat is money that has left the payer but has not yet reached the payee, sitting in transit inside the payment system.Corridor liquidityCorridor liquidity is the capacity to convert and settle money in one specific currency corridor, at the size you need, when you need it, without moving the price against yourself.

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