New US-Mexico payments pathway will tap rural community banks

A new cross-border payments infrastructure will enable remittances between the US and Mexico via 140 community banks in rural areas.

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New US-Mexico payments pathway will tap rural community banks

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The new corridor is being developed by the Interledger Foundation, an organisation dedicated to the creation of an open, interoperable payment network and the People’s Clearinghouse, which works with community banks and credit unions in Mexico.

The Interledger Foundation argues that for US-based Mexicans using private money transfer services often comes with high fees, high minimums, and prolonged wait times.

It also does little to empower local financial institutions or the communities they serve, helping to create cash-based ecosystems where capital never enters community banks' ledgers. As a result, communities miss out on capital that could fuel innovation and sustainable development.

The Interledger Foundation and People’s Clearinghouse aim to arm rural community banks with the digital infrastructure and secure payment capabilities they need to transform remittance flows into capital to reinvest locally. This will include receiving remittances directly into their clients’ accounts and generating deposits that will lead to substantially more loans and local investments.

To achieve this, The People’s Clearinghouse will tap the Foundation’s Interledger Protocol - an open, neutral protocol for transferring money-and its Rafiki software to create internetwork connections. All of this will enable everyday users to bypass private money transfer services and route payments to local credit unions and community banks back home.

Isabel Cruz, chairwoman, People’s Clearinghouse, says: “Our mission is to create a door to the world so community banks can access banks and authorize transfers no matter where payments originate.

“It’s critical that we work with organizations like the Interledger Foundation to achieve this considering that there is little incentive for U.S. financial institutions to invest in building infrastructure for rural banks. To Mexican communities and residents, on the other hand, there are huge social and financial benefits for introducing a payment gateway that’s instantaneous 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.

However, the Interledger Foundation - which is largely funding the effort - wants the new payment infrastructure to ultimately serve as a blueprint that can be deployed worldwide for other under-banked and rural populations.

“We view the work that People’s Clearinghouse is spearheading in Mexico as a roadmap that other regions across the world can also follow to democratize payments in currently underserved communities,” says Briana Marbury, CEO, Interledger Foundation. “Cross-border remittances have historically been dominated by a few companies that charge high fees to capitalize on the needs of vulnerable populations. We are eager to change this, one country at a time.”

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