Payment System Liquidity Management via Transaction Reordering
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Solution Overview
Problem
Current payment systems face inefficiencies and high operational costs due to the need for netting agents and complex algorithms in managing liquidity requirements, which increase transaction settlement time and legal complexities.
Innovation Solution
A method that reorders transactions based on available liquidity of participants to minimize liquidity requirements, allowing for efficient settlement without the need for netting agents, using a fund transfer system to arrange transactions in a second order that reduces computational complexity and operational costs.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Quantity of substance
If multilateral netting is used to minimize liquidity requirements, then liquidity requirements are reduced, but operational cost and legal cost significantly increase due to the need for a netting agent
Solution Approach 1:
The patent extracts and eliminates the netting agent from the payment system by implementing a gross settlement system where transactions are settled directly between participants based on their available liquidities, removing the intermediary that causes operational and legal complexities while still achieving liquidity optimization through transaction reordering algorithms
Solution Approach 2:
Participants in the payment system determine their own available liquidities and settle transactions directly with each other without requiring a netting agent to calculate net positions and coordinate settlements, enabling the system to achieve liquidity efficiency through decentralized self-service settlement based on algorithmically determined optimal ordering
2Productivity
If complex algorithms are used to construct netting sets, then transaction settlement optimization is achieved, but computing time and operational complexity increase substantially
Solution Approach 1:
The patent replaces complex, computationally intensive netting algorithms with a simpler transaction reordering approach that achieves similar liquidity optimization results with substantially reduced computing time and operational complexity, using disposable-like simplicity in the settlement mechanism
Solution Approach 2:
The patent changes the fundamental parameter of settlement from netted positions requiring complex algorithmic construction to gross settlements based on available liquidities, optimizing the settlement process by reordering transactions according to liquidity availability rather than using computationally intensive dynamic programming or other complex algorithms
3Measurement precision
If netting agent dependency is maintained for transaction settlement, then transaction selection optimization is achieved, but settlement time duration significantly increases
Solution Approach 1:
The patent removes the netting agent intermediary from the settlement process, enabling direct peer-to-peer transactions between participants that are settled immediately based on available liquidities and algorithmically determined reordering, eliminating the time-consuming coordination and settlement steps required by netting agent dependency
Data Source
AI summary
Disclosed is a method for managing liquidity requirements in payment system, the method comprising: receiving transaction data comprising plurality of transactions in payment system, first order for plurality of transactions, and specifications of plurality of transactions, wherein specification of transaction includes sender(s), receiver(s), and value of said transaction; determining available liquidities of participants plurality of transactions, each participant being sender or receiver in transaction(s); determining second order in which plurality of transactions are to be settled, based on values of plurality of transactions and available liquidities of their senders, wherein liquidity requirements for settling plurality of transactions using second order are lesser than liquidity requirements for settling plurality of transactions using first order; reordering plurality of transactions prior to settlement such that upon said reordering, plurality of transactions are arranged in second order, wherein plurality of transactions are settled according to second order, for liquidity savings, by fund transfer system.