Exploring Frontiers in Payment
System Development
World Bank
May 29-June 1, 2007
“Interconnecting ACHs Across Borders”
Elizabeth McQuerry
Federal Reserve Retail Payments Office
Outline
o Federal Reserve Banks and Retail
Payments
o Building the ACH Inter-Connections
o The Experience of Directo a México
o Directo a México and General Principles for International Remittances
Services
o Lessons Learned
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Federal Reserve Banks
and Retail Payments
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Mission
o Foster the integrity, efficiency, and
accessibility of U.S. dollar payments and
settlement systems, in support of U.S.
financial stability and economic growth in
a global context
o Federal Reserve Banks – FedACH Services®
o Nation’s largest ACH operator with nearly 40
years of experience and ACH expertise
o http://www.frbservices.org/Retail/fedach.html
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International ACH
o 1999 – Rivlin Report stated that Federal
Reserve should enhance its own
infrastructure to support cross-border
ACH transaction and work with the
industry to develop robust ACH crossborder capability.
o On-going needs to meet evolving
international payments needs in costeffective, electronic format
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Building the ACH
Inter-Connections
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Objectives-Payments System
Develop efficient and low cost interbank
mechanisms to transact payments
(corporate, individual, government)
between countries that will be available to
all financial institutions.
Connections should reach ALL banks in
destination low-value payment system
o Strive for no beneficiary deductions
o
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Development-Legal (1)
o The operating rules of each central
bank/payments system rules govern their
respective payments system.
o
NACHA formats and rules in the US
o Provides sound, predictable,
nondiscriminatory, and proportionate
legal and regulatory framework.
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Development-Legal (2)
o Agreements
o Joint service contract that includes
formats, timeframes, technical
specifications, operating rules,
warranties, treatment for exceptions
(rejects, cancellations, complaints, etc.)
o
Contract periodically updated as
service is enhanced.
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Development - Technology
o
o
US banks originate payments in NACHA crossborder formats.
o Edits performed by FedACH.
Format converters created to translate NACHA to
local format.
CPA 005 in Canada
o SPEI in Mexico
o SWIFT-like Eurogiro format in Europe
o Tropicalized NACHA in Panama
Receiving Gateway Operator make conversion and
o
o
o
perform edits for local payment system rules.
Periodic modifications required as enhancements
are implemented.
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Development - Marketing
o Sales materials / activities created to:
o Inform U.S. financial institutions about
services
o Educate financial institutions about
international payments and foreign
payments systems
o Facilitate usage of international ACH (tool
kits, white-branded marketing materials)
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Trajectory
o 1999- Canada pilot
o 2001 – Canada Service opened
o Fall 2003 – Government payments to
Mexico
o 2004
o Spring – Commercial payments to Europe
and Mexico
o Fall 2004 – Government payments to
Panama
o 2006 – Government payments to Canada
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FedACH International® Services
o Reaches accounts in countries representing 53%
of global GDP
o
http://www.frbservices.org/Retail/intfedach.html
o Receiving Gateway Operators:
o Canada – Bank of Nova Scotia
o Europe – Eurogiro Member Institutions / Eurogiro
Network connectivity and processing
o Mexico – Banco de Mexico
o Panama – Banco Nacional de Panama / Telered
for connectivity and processing
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Directo a México
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Origins
o September 2001 – Partnership for
Prosperity between Presidents Bush and
Fox stated:
o The Banco de México and the U.S. Federal
Reserve agreed to study the possibility of
setting up an automated clearinghouse
system (ACH). Once established, there will be
an efficient interbank mechanism to carry out
payments between both countries that will be
available to all financial institutions
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Beginning
o Service based on same logics as
“domestic” ACH
o
o
Federal Reserve role somewhat like a
utility company
Private sector role to commercialize
o International ACH a similar animal but
has different stripes
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Payment Characteristics
Beginning
Improvements
Type
Account to Account
Account to Account
Funds Availability
2 business days
Next business day
FX
FIX – 1.00%
FIX – 0.21%
Currency
USD-MXN
USD-MXN
MXN-MXN (in development)
Flow
US to Mexico
US to Mexico
Mexico to US (in development)
Fee to U.S. Financial
Institution
$0.67
$0.67
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Directo a MéxicoSM
o
White-brand concept launched in Fall
2005 (formerly FedACH International
Mexico Service)
o Provides financial institutions with
customizable, Spanish language
materials oriented to consumer needs
Color poster and brochure, lobby/tent cards, text
of radio spot, FX Information Sheet
o Customer Guide (market and promotional ideas for
financial institutions)
o
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Challenges
o
Customers may need special marketing
and customer service needs
o
Money transfer businesses dominate
remittance market
o
Potential customers may not have
traditional documentation and may be
unbanked
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Innovation
o Beneficiary Account Registration (BAR)
website
o
o
o
Developed by Bansefi to pre-open lowcost accounts in Mexico over internet
Remittance transfer provides incentive to
formalize account and become banked
Collaboration with the Federal Reserve to
facilitate ease of use by USFIs and link
with economical Directo a México
payment channel
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Lessons Learned
o
Branding to Directo a México important step
in facilitating offer by financial institutions
and commercial acceptance by consumers.
o
More financial education needed.
o
Account to account payments are transparent
and carried out between highly and routinely
regulated financial institutions.
o
International ACH slowly taking hold in
industry mindset but change in financial
sector can be slow.
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Directo a México and
General Principles for
International Remittances
Services
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1. The market for remittances services should be
transparent and have adequate consumer
protection.
o All fees paid by payment originator.
o Ensure no beneficiary deductions by using
electronic payment system.
o Foreign exchange rates posted on internet:
http://minneapolisfed.org/fedachfx/
o Consumer protections apply as part of general
banking regulations.
o Consumer information brochures in English and
Spanish included in promotional materials.
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2. Improvements to payment system infrastructure
that have the potential to increase the efficiency of
remittance services should be encouraged.
o Payments to any deposit or debit account
in Mexico. Funds available via branch or
ATM withdrawal, POS, electronic transfer.
o Bansefi’s website facilitates entry to
banking system for Mexicans in Mexico.
o L@ Red de la Gente credit unions being
added to the website – greater
distribution and financial access.
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3. Remittances services should be supported by a
sound, predictable, non-discriminatory and
proportionate legal and regulatory framework in
relevant jurisdictions.
o Directo a México available from financial
institutions (banks and credit unions) in
the U.S. which are highly and routinely
regulated and operate under payment
system rules
o Payments received by Mexican
institutions which are highly and
routinely regulated and operate under
payment system rules
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4. Competitive market conditions, including
appropriate access to domestic payment infrastructures, should be fostered in the remittance
industry.
o Directo a México allows any U.S. financial
institution to offer an efficient, secure,
low-cost electronic transfer to Mexico
o $0.67 surcharge to U.S. financial
institution
o Fee to consumer determined by each
financial institution
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5. Remittance services should be supported by
appropriate governance and risk management
practices.
o Banks and credit unions in U.S. are highly
and routinely regulated
o Risk management for cross-border
payments should be evaluated within
framework of overall institutional risk
and business itself (volume, value,
originators, receivers, etc.)
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Lessons Learned
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Lessons Learned
o
Connectivity and technology are the easy part.
o
Central banks can only encourage savings and
better options in the market. Establishment of
new ideas requires financial institution and
consumer and behavior to change.
o
o
Banks and credit unions can now offer low-cost
cross-border transfers to their customers but
they are not yet used to doing this.
Customers originating and receiving transfers
must trust and learn to use financial institutions
to attain a range of benefits.
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Ongoing Challenges for InterConnecting ACHs
o
Lack of person-to person payment model
in U.S. (remittances)
o
Lack of trust in financial institutions and
consumer financial education in some
receiving countries
o
Growing concern over regulatory
environment for financial institutions –
regulations expand by the number of end
points.
o
This is new.
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Contact
Elizabeth McQuerry
Assistant Vice President
Federal Reserve Retail Payments Office
404/498-7888
elizabeth.mcquerry@atl.frb.org
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