The hidden cost of pre-funding

Across cross-border payments LATAM, many providers still keep balances parked in local accounts to “guarantee” liquidity. Those pre-funding costs show up as lower returns, extra fees, and slower operations—while customers expect money to move with real-time settlement 24/7/365. A modern approach replaces buffers with on-demand liquidity, letting you fund when needed, not days in advance. The shift reduces the cost of idle capital, stabilizes execution, and simplifies treasury workflows.

Why pre-funding drains returns

Pre-funding emerged as a workaround for cut-offs, correspondent delays, and uneven market depth. But the side effects are expensive. Idle balances don’t earn a return and create idle capital in treasury that can’t be redeployed into growth. Liquidity gaps during off-hours amplify FX spread volatility, and every transfer between staging accounts adds fees and operational work. In short, the old model solves yesterday’s constraints while imposing today’s prefunding costs / pre funding costs

What the total cost really includes

Finance teams often see wire fees and FX margins, but miss the full TCO. Start with the cost of idle capital—the financing rate you could earn or the debt you could pay down. Add the basis between the mid-rate and your deal rate, plus slippage in thin windows. Layer in custody and movement fees, plus time lost to manual checks and file uploads. For many PSPs, the hidden line item is PSP treasury management overhead: reconciling multiple rails and accounts, handling exceptions, and keeping operators on standby to hit cut-offs.

Consider a simple sizing: if you send USD 50M per month to Mexico and keep a 10% buffer, USD 5M sits still. At an 8% treasury rate, that’s roughly USD 400k per year in pure opportunity cost—before spreads, fees, or rework. Now compare that to a model where conversion and settlement happen on demand, not pre-positioned.

The alternative: on-demand liquidity

On-demand liquidity aligns funding with actual payment moments. Instead of parking balances days ahead, you convert as you go and settle locally in minutes. Done right, this unlocks capital, reduces variance in execution prices, and compresses your cash cycle. Crucially, it makes USD/MXN payouts predictable and scalable, even during peak hours, without carrying a large “just in case” float.

In Mexico, SPEI* payments can deliver instant domestic settlement; in Brazil, PIX plays a similar role. When you pair these rails with deep stablecoin liquidity, you can source value globally and deliver locally—with finality measured in minutes rather than days. This is where stablecoin rails shine: they act as programmable, always-on liquidity layers that interoperate with local systems.

What changes in day-to-day operations

Moving from pre-funded accounts to on-demand orchestration has practical effects you’ll feel in the first month:

• Cash is released back to the business. That frees working capital for acquisition, terms, or reserves.
• Execution becomes more consistent. You reduce exposure to FX spread volatility by accessing deeper pools when you actually need to trade.
• Fewer moving parts. You replace multiple hops and manual uploads with API payouts / mass payouts, webhooks, and reconciliation automation.
• Better resilience. With always-on flows, you stop planning around cut-offs and weekend gaps.

Narrative example (same economics, different outcome)

A PSP sends USD 50M/month to Mexico. Under the legacy model, treasury keeps a 10% buffer in local accounts to cover timing gaps. That ties up USD 5M. At 8%, the cost of idle capital is about USD 400k/year, plus fees, plus the spread basis you pay when you’re forced to trade in thin windows. Teams spend hours each week reconciling staging accounts and handling exceptions.

After moving to on-demand liquidity, the PSP funds as needed and triggers SPEI* payments from an API workflow. Conversion happens just-in-time, settlement lands in minutes, and overnight float falls to zero. The business recovers hundreds of thousands from the buffer alone, while ops time drops thanks to reconciliation automation and standardized webhooks.

Implementation notes for PSPs

Successful adopters treat this as a treasury modernization, not only a rail change. A typical playbook:

1. Quantify your buffer and calculate the cost of idle capital using your real rate.
2. Identify corridors with the biggest variance in pricing and timing; USD/MXN payouts are a common starting point.
3. Stand up API payouts / mass payouts with clear routing rules and observability (alerts, dashboards, retry logic).
4. Integrate compliance controls (KYC/AML, monitoring) into the flow, not as an afterthought.
5. Pilot, measure time-to-settle, basis vs mid, exceptions, and working-capital released. Iterate and expand.
   
   

Pre-funding costs are a tax on growth. By replacing buffers with on-demand liquidity, PSPs can shrink idle capital in treasury, lower the cost of idle capital, and deliver real-time settlement 24/7/365 that customers actually feel. For teams running PSP treasury management across cross-border payments LATAM, this shift stabilizes USD/MXN payouts, reduces exposure to FX spread volatility, and opens credible correspondent banking alternatives.

The path forward is practical: implement API payouts / mass payouts, embed reconciliation automation, use SPEI* payments for instant domestic delivery, and source value through stablecoin liquidity over modern stablecoin rails. Addressing prefunding costs / pre funding costs head-on isn’t just an optimization—it’s a step-change in how you fund, settle, and scale.

Download the ebook “Navigating liquidity in transactions: How LATAM businesses are powering cross-border FX” in the Bitso Business Content Hub to see reference architectures, controls, and real-world benchmarks for migrating from pre-funded buffers to on-demand liquidity.

*NVIO México enables direct access to SPEI and delivers payment services fully compliant with Mexican regulation. NVIO Pagos México, S.A.P.I. de C.V., IFPE (“NVIO México”) is authorised and regulated by the Mexican National Banking and Securities Commission (CNBV). Learn more at nvio.mx/terms.