The proof of concept paper aims to improve the current Nostro reconciliation and settlement process in terms of time, effort, and liquidity. Currently, the Nostro reconciliation and settlement process faces challenges such as poor payment transparency as end-of-day batch reconciliation process that can result in a 24 to 48-hour delay in the visibility of transaction status. Furthermore, the current double entry accounting model requires financial institutions on either end of a transaction to keep their own record of that transaction. The maintenance of these separate records, coupled with the delays associated with an end-of-day batch process, determine each bank to retrospectively reconcile their separate views of the same events.
Other challenges may be imposed by delays in advising of fund disbursement and inefficiencies in management and usage of liquidity and funding whereby banks are forced to make funding decisions based on estimations rather than fact.
The banks have agreed to test smart contracts to improve the current Nostro reconciliation and settlement process in March 2016. Both ANZ and Wells Fargo were able to provide a solution for interbank transparency and could ascertain the intra-day balance of their Nostro accounts; view the status of inward and outward transactions; and calculate the correspondent fees accrued for each transaction.
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