Counterparty risk
Counterparty risk is the risk that the other party to a payment, trade or deposit fails to meet its obligations, in full or on time. Payment firms face it with banks, payout partners, OTC desks and stablecoin issuers that hold or owe them money.
How it works
The CPMI glossary breaks it down. Credit risk is the risk a counterparty cannot meet its obligations fully, when due or at any time in the future. Principal risk is losing the full value, for example by delivering an asset and not receiving payment. Replacement-cost risk is losing unrealised gains on unsettled transactions.
In FX, principal risk arises when one currency is paid before the other is received. Payment-versus-payment settlement removes it by making the final transfer of each leg happen only if the other leg settles. CLS settles over $8 trillion of payments a day in 18 currencies this way and says its multilateral netting reduces members' funding requirements by over 96%.
Remittance filings show the exposure. Remitly names financial institutions, aggregators, local cash pick-up institutions where it holds cash on deposit, its lenders and potential hedging counterparties as parties whose failure could cause it material losses. Intermex reported credit risk on balances owed by sending agents and digital partners, with a provision for credit losses equal to 1.0% of revenue in 2024.
Example
A firm has $4,000,000 prefunded with one payout partner and $1,500,000 in transit to it, so $5,500,000 is at risk if that partner fails. Splitting the corridor across two partners at $2,750,000 each halves the loss from any single failure, at the cost of more balances to manage.
Frequently asked questions
How do we limit counterparty risk with a payout partner?
Set an exposure limit per partner, keep prefunding to what the corridor needs, use more than one partner where volume justifies it and watch each partner's financial health.
Does payment-versus-payment remove all counterparty risk?
No. It removes principal risk on the exchange itself, but replacement-cost risk remains if a trade fails before it settles.
Where Polynopsis fits
Polynopsis shows how much money sits with each bank, payout partner, OTC desk and wallet, which is the exposure to each counterparty.
Compared with
Related terms
Sources
- A glossary of terms used in payments and settlement systems · Committee on Payments and Market Infrastructures, Bank for International Settlements
- CLSSettlement · CLS Group
- Remitly Global, Inc. Form 10-K for fiscal year 2025 · U.S. Securities and Exchange Commission (EDGAR)
- International Money Express, Inc. Form 10-K for fiscal year 2024 · U.S. Securities and Exchange Commission (EDGAR)
Know where all your money is.
Polynopsis gives cross-border payment teams one live position across every bank, payout partner, exchange and wallet, including money in flight, and warns before a corridor runs dry.
About Polynopsis
Polynopsis is liquidity management software for cross-border payment companies. The name joins poly, many, and synopsis, a seeing together: one live view of money spread across many banks, payout partners, exchanges and stablecoin wallets, including money in flight, with a warning before any corridor runs dry.
Why it is called Polynopsis · About Polynopsis · Glossary · Corridor runway calculator