Understanding Nostro, Vostro, and Loro Accounts for Global Payments

Cross-border payments play a key role in how you sell software, deliver services, or ship goods overseas. With India’s exports touching $824.9 billion in FY24-25, banks need reliable systems to move money across currencies and borders smoothly.

This is where Nostro, Vostro, and Loro accounts come in. Banks use Nostro accounts to hold foreign currency abroad, Vostro accounts to manage funds for overseas banks in India, and Loro accounts to route transactions between two other banks. Together, these accounts form the backbone of correspondent banking.

Once you understand Nostro, Vostro, and Loro accounts, global payments feel far less confusing. Read on to see how each account works and why it matters for your international transactions.

What Are Nostro, Vostro, and Loro Accounts? An Essential Overview

International payments do not move directly from one bank to another. They pass through a network of partner banks that hold and manage funds on each other’s behalf. This system, known as correspondent banking, makes cross-border payments possible even when your bank has no branch in the destination country.

At the centre of correspondent banking are Nostro, Vostro, and Loro accounts. These terms help banks describe how and where funds are held during cross-border transactions. The transaction remains the same, only the banking perspective changes.

Nostro account is a bank’s foreign currency account held with another bank overseas.
Vostro account is a foreign bank’s account held with a domestic bank.
Loro account is a reference to an account between two other banks.

The Nostro Account: Our Money With You

A Nostro account is how a bank keeps money in another country to settle foreign transactions efficiently. It plays a key role in foreign exchange and cross-border settlements.

1. A Nostro account is held by a domestic bank with a foreign bank
2. It is maintained in the foreign currency of that country
3. Nostro means ours, reflecting the home bank’s perspective
4. Banks use it to process international payments and foreign exchange conversions
5. It also helps manage liquidity for regular foreign currency outflows

Example: An Indian SaaS company gets paid by a US client in dollars. The Indian bank uses its USD Nostro account with a US bank to receive the money before converting it to rupees and crediting the account.

The Vostro Account: Your Money With Us

A Vostro account is the mirror image of a Nostro account, viewed from the domestic bank’s side. It allows foreign banks to operate in another country without opening a local branch.

1. A Vostro account belongs to a foreign bank but is held with a domestic bank
2. It is typically maintained in the domestic currency
3. Vostro means yours, indicating the foreign bank’s ownership
4. It supports local payouts, remittances, and settlements
5. It enables correspondent banking without a local branch

Example: A UK company needs to pay an Indian freelancer in rupees. The UK bank uses its Vostro account with an Indian bank to make the local INR payment without opening a branch in India.

Explore Razorpay’s Global Payment Solutions

The Loro Account: Their Money With Them

A Loro account is not a physical account. It is a reference term banks use when describing relationships between two other banks.

1. A Loro account refers to an account held between two other banks
2. Loro means theirs, showing the account belongs to neither the sender nor the receiver
3. Banks use it in multi-bank transactions to avoid confusion, especially in SWIFT messages
4. It helps keep interbank communication clear when payments pass through several banks

Example: An Indian bank needs to send money to a client in the UK but does not hold an account there. It routes the payment through a US bank. The US bank uses its own account with a UK bank to complete the settlement. When the Indian bank refers to this US bank and UK bank account, it calls it a Loro account.

Why Do These Accounts Exist? The Backbone of Global Finance

Long before modern payment networks, banks needed a practical way to support international trade. Nostro, Vostro, and Loro accounts emerged to bridge this gap and remain key to global banking.

These accounts exist because they help banks work together efficiently across countries.

1. Enable correspondent banking relationships that support trade where banks have no direct presence
2. Allow banks to offer international payments without opening overseas branches
3. Reduce risks and delays linked to physical cash movement and currency handling
4. Support smooth interbank settlements and foreign currency liquidity management
5. Strengthen financial stability by ensuring payments clear during market stress

Comparing Nostro, Vostro, and Loro Accounts

The difference lies in the bank’s point of view. The same funds may be called Nostro by one bank and Vostro by another. Loro is used only as a third-party reference.

Nostro account

Meaning: Our money with you
Perspective: Home bank’s view
Held by: Domestic bank with a foreign bank
Currency: Foreign currency
Nature: Actual bank account
Accounting: Asset for the holding bank

Vostro account

Meaning: Your money with us
Perspective: Foreign bank’s view
Held by: Foreign bank with a domestic bank
Currency: Domestic currency
Nature: Actual bank account
Accounting: Liability for the holding bank

Loro account

Meaning: Their money with them
Perspective: Third-party reference
Held by: Not held by the referring bank, it is only a reference term
Currency: Depends on the two other banks
Nature: Reference term, not an account
Accounting: No separate accounting treatment

How Do Nostro, Vostro, and Loro Accounts Facilitate International Payments?

When you export goods or services and receive payment from an overseas buyer, your bank relies on a Nostro account held with a foreign correspondent bank. The buyer’s bank may treat this as a Vostro relationship because it holds funds on behalf of your bank. This allows settlement in the buyer’s currency.

For international remittances, funds move through correspondent banks that maintain these accounts. Each bank debits or credits Nostro or Vostro balances to complete the transfer.

In more complex routes, a Loro reference helps when a third bank sits between the sending and receiving banks, ensuring everyone tracks the same account correctly.

SWIFT messages coordinate these steps by carrying payment instructions, confirmations, and settlement details between banks.

Benefits and Challenges of Traditional Correspondent Banking

What are the key benefits for banks and businesses?

1. Banks and customers can access foreign markets without setting up branches everywhere
2. It supports trade and investment flows, helping exporters and service businesses send and receive funds worldwide
3. Banks can manage foreign currency liquidity through Nostro balances held overseas
4. Established interbank relationships help reduce settlement risk in cross-border transactions

What challenges do traditional methods pose?

1. Transfers can involve high fees and multiple currency conversions, reducing the final amount received
2. Settlement can be slow, with limited real-time visibility
3. Compliance across jurisdictions adds delays and manual work
4. Exchange rates can change between payment initiation and settlement, impacting the final amount
5. Multiple intermediaries increase operational effort, making reconciliation and counterparty risk management critical

Modern Developments in International Payments

While Nostro, Vostro, and Loro accounts still matter, cross-border payments are improving through speed, visibility, and cost control.

SWIFT GPI

It improves transfers with faster settlement, end-to-end tracking, and clearer fee visibility. SWIFT states that almost all GPI payments now reach the beneficiary within one day.

Fintech platforms and digital payment solutions

They simplify international collections and payouts, reduce intermediaries, lower costs, and offer clearer timelines.

Blockchain-based systems and CBDCs

Central banks are testing new settlement rails, including RBI digital rupee pilots, to explore faster and more secure cross-border settlement.

AI and automation

Banks use automation to reconcile Nostro accounts faster and flag unusual transactions early, reducing errors and fraud risk.

Razorpay MoneySaver Export Account: Simplifying Cross-Border Transactions for Indian Businesses

While correspondent banking still powers global payments, Indian exporters often need faster, clearer, and more cost-effective ways to receive money from abroad. Razorpay MoneySaver Export Account offers an option designed around how businesses get paid internationally.

1. Accept international payments from over 180 countries through bank transfers, global cards, Apple Pay, and Google Wallet
2. Transparent pricing with zero forex markup and lower bank-transfer fees
3. Payments processed through RBI-compliant channels with automated FIRC generation
4. Single dashboard for tracking payments, reconciliation, and cash flow management

Conclusion

Nostro, Vostro, and Loro accounts remain the building blocks of global finance. They explain how banks hold, move, and settle money across borders, making international trade possible. These accounts continue to sit behind many cross-border transactions and help banks manage liquidity and settlement.

International payments are evolving through technology that reduces delays, costs, and manual work. While the core concepts still matter, the direction is towards faster and more transparent cross-border solutions that reduce operational complexity for businesses.

FAQs

1. What is the fundamental difference between Nostro, Vostro, and Loro accounts?

The difference is based on perspective. Nostro means our money with you, Vostro means your money with us, and Loro refers to their money with them.

2. How do Nostro and Vostro accounts support international trade and remittances?

They allow banks to send and receive foreign currency payments without having branches everywhere, enabling smoother trade settlements and cross-border remittances.

3. Are Nostro, Vostro, and Loro accounts still relevant today?

Yes. Even with digital payments, these accounts remain essential for correspondent banking, reconciliation, compliance, and understanding fund flows.

4. How do banks reconcile transactions across these accounts?

Banks reconcile by matching Nostro and Vostro entries with statements from correspondent banks, SWIFT messages, and internal ledgers to ensure balances, charges, and settlements align.

5. What role does technology play in managing these relationships?

Technology improves visibility, speeds up settlements, automates reconciliation, and reduces errors through tools like SWIFT GPI and AI-based systems.

6. How does Razorpay MoneySaver Export Account simplify this for businesses?

It provides an RBI-compliant platform to collect international payments with transparent pricing, faster settlements, automated FIRC, and easier reconciliation through one dashboard.