The Quiet Cost of Pre-Funded Correspondent Banking

Published: September 16, 2026

Current cross-border treasury has hidden costs, not least having too much cash trapped in the wrong places. Andy Lyons, Chief Growth Officer, Freemarket, finds all is not well with an opportunistic legacy banking model, proposing a modern stablecoin-based remedy.

For years, the challenge of moving money across borders has been framed as a problem of speed. The ability to move money faster, particularly when trying to reach the far side of an emerging market, has been the prevailing challenge for treasury teams and CFOs, who have built their processes, their banking relationships and their working weeks around the assumption that international payments take time.

The cost that CFOs should consider is not how quickly a payment clears but how much capital a business must leave immobilised in the settlement process. Repatriating funds through correspondent banking can take up to 28 days, leaving capital either in transit or parked in advance to keep a corridor open.

For that period, it earns nothing and enables nothing, when it could instead be funding inventory, investment, or growth. This is the opportunity cost of the old model, and it is compounded by the strategy of pre-funding, whereby a business holds working capital in an account before it can send anything through a corridor, and that money sits idle just to keep the rails available.

However, as real-time domestic rails have matured and a new generation of settlement infrastructure has begun to take shape, there are opportunities to unlock capital that has been stranded for years and put it back to productive use, both for the businesses moving money and the providers that move it for them.

To do this, treasurers and CFOs should understand why correspondent banking persists, recognise that the pre-funding it relies on is a choice, not a fixed cost, and weigh what releasing that capital is worth.

Unquestioned costs

If pre-funding is so visibly expensive, the question CFOs and treasury teams should consider is why it endures. While there exists a type of inertia when a payment route is cleared, as typically it is never reopened, it is also a matter of risk aversion, since payments are the last place where a treasury team wants a surprise. Another barrier lies in procurement, as switching rails means the arduous process of co-ordinating new counterparties, new diligence and new sign-off.

Underlying all of it is a board-level unfamiliarity with the alternatives, which means the option to change is rarely given a serious hearing at the level where it would be authorised. That friction takes the most immediate attention, while the cost of pre-funding grows in the background.

Taking advantage of new alternatives that circumvent pre-funding is therefore critical, and it is imperative to secure buy-in at board level at the outset. Whether through real-time domestic payment schemes or networks that underwrite payments against a business’s own liquidity, these approaches keep capital inside the business rather than stranded in accounts around the world.

Unlocking capital

Every corridor a business runs needs its own nostro balance, and the correspondent bank charges to move money it already holds. Run across every market in which a company operates, a large amount of working capital is locked up at any moment, keeping corridors open that may be used only occasionally. For a business spanning several emerging markets, that is capital that could be funding inventory, new routes or the balance sheet.

Analysing the total working capital sitting across nostro accounts on a normal day, viewed as a portion of the capital that could otherwise be deployed, reveals the true scale of the cost. That figure is the baseline against which any alternative should be judged, and it turns pre-funding from an operational given, buried in treasury, into a decision the board can see and question.

A turn for the better

The alternative to pre-funding is to reverse the order on which it depends. Traditional correspondent banking asks the party making a payment to fund it before it can move. Pay now, settle later (PNSL) flips this on its head.

We've seen it in practice through our partnership with Axiym, which supports the PSPs that process local-currency payments in emerging markets on behalf of larger international money transfer operators.

Rather than the PSP tying up its own working capital, or scrambling to find alternative funding, Axiym advances the funds for each specific payment. The capital that would have been locked up to settle it stays on the PSP’s balance sheet until it is genuinely needed.

So instead of requiring hard fiat currency sitting waiting in a specific account before being sent, Axiym’s embedded treasury layer provides short-term intraday or post-pay financing. The payer settles the transaction balance on a deferred timeframe.

An AI-driven credit scoring system dynamically determines these settlement windows based on real-time risk. The engine evaluates and learns from live transactional habits to dynamically expand or restrict settlement options. In doing so, it considers aspects such as the volatility of the destination currency corridor, transaction behaviour data, and analyses live inflows and macro market trends to calculate current cash-flow stability.

The system uses a Tether-backed digital asset infrastructure. This enables the platform to natively mint, settle, and burn USDT stablecoin behind the scenes to bridge different currency pairs, so the payment settles natively at the final destination in seconds. Treasurers can use this approach to lock in FX pricing at the moment of execution rather than facing FX risk exposure as bank transfers remain pending.

Leaving the competition behind

There is a clear case for firms to act now. Emerging research from J.P. Morgan’s 2026 Payments Outlook shows that nearly 60% of Fortune 500 companies are planning blockchain initiatives, with many of them focused squarely on payments and settlement.

Viewed through this lens, pre-funding will increasingly become an expensive way to do something the market is learning to do cheaply. Cross-border trading is now a strategic choice. I believe that the businesses that act first, alongside the providers serving them, will free the working capital their competitors leave stranded. Freemarket, a global payments network provider, is a TMI Innovation Lab entrant.