Two ways to make a cross-border payment possible: fund it in advance, or net it against the flow going the other way. Prefunding was the only practical option for most of correspondent banking's history. An order book changes the economics by cancelling what does not need to move.

The order book idea

An order book gathers approved operations in one place before any external settlement happens. Rather than treating each payment as an isolated event that must be funded in full, it looks at the whole set of flows arriving in the same window and finds what offsets. What nets stays inside; what does not net is routed onwards.

The netting example

Suppose bank A sends €10m, while participants B and C are due to receive €8.5m. In a gross, prefunded model, the full €10m must be funded and routed. With netting, the €8.5m is satisfied internally against other participants' flow, and only the €1.5m difference leaves the hub.

That single number is the point. Prefunding requires capital for the gross amount; netting requires capital for the net amount. Currency inside the network is handled by internal FX, so a mismatch of currencies does not force an external leg. Participants also settle instantly among themselves for the portion that cancels, which removes delay that would otherwise come from the round trip.

What this does not claim

Netting does not remove the need for liquidity, and it does not eliminate every external transfer — participants still need balances where they hold them. What it changes is how much has to be ready at once. Fewer external legs also mean fewer hops, fewer fees and fewer reconciliation points, so the effect compounds across the flow rather than applying to a single payment.

This is general information, not financial, tax or legal advice.

In short

  • Prefunding asks capital to be ready for the full, gross amount.
  • An order book nets offsetting flows before anything moves externally.
  • In the worked example, only €1.5m of €10m has to leave the hub.
  • Internal FX handles currency so a currency mismatch need not create an external leg.

See the mechanics in context at /protocol/.