A new cross-border payments infrastructure will enable transfers between the U.S. and Mexico through 140 community banks in rural areas.
The new corridor is being developed by the Interledger Foundation, an organization dedicated to creating an open, interoperable payments network, and the People’s Clearinghouse, which works with community banks and credit unions in Mexico.
The Interledger Foundation argues that using private money transfer services for Mexicans based in the U.S. often involves high fees, high minimum amounts and long waiting times.
It also does little to strengthen local financial institutions or the communities they serve, and contributes to the creation of cash-based ecosystems in which capital never enters the banking books of community banks. As a result, communities miss out on capital that could drive innovation and sustainable development.
The goal of the Interledger Foundation and the People’s Clearinghouse is to equip rural community banks with the digital infrastructure and secure payment options they need to convert remittance flows into capital that can be reinvested locally. This includes receiving transfers directly into their customers’ accounts and generating deposits that will lead to significantly more loans and local investments.
To achieve this, The People’s Clearinghouse will use the Foundation’s Interledger Protocol – an open, neutral protocol for the transfer of funds – and its Rafiki software to create Internet connections. All of this will allow everyday users to bypass private money transfer services and forward payments to local credit unions and community banks at home.
Isabel Cruz, chairwoman of People’s Clearinghouse, says, “Our mission is to create a doorway to the world so that community banks can access banks and authorize transfers, regardless of where the payments come from.”
“It is critical that we work with organizations like the Interledger Foundation to achieve this, as there is little incentive for U.S. financial institutions to invest in building rural banking infrastructure.” But for Mexican communities and residents There are huge social and financial benefits to be gained from introducing a payment gateway that is instantly available and affordable.”
The project will involve the 140 members of the Mexican Association of Social Sector Credit Unions – a network of community banks in rural Mexico.
But the Interledger Foundation — which is largely funding the effort — wants the new payments infrastructure to ultimately serve as a blueprint that can be used for other underserved and rural populations around the world.
“We view the work People’s Clearinghouse is driving in Mexico as a roadmap that other regions around the world can follow to democratize payments in currently underserved communities,” said Briana Marbury, CEO of the Interledger Foundation. “Cross-border remittances have historically been dominated by a few companies charging high fees to capitalize on the needs of vulnerable populations. We are committed to changing this, one country at a time.”