Payments in the Americas

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Payments in the Americas

• Comparing Experiences

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I. Background

• In early 2002, the Federal Reserve and Banco de
  México got together to talk about a possible link
  between Fed ACH and TEF, the Mexican ACH.
• The objective was to develop a reliable, low cost
  infrastructure for cross border transactions
  between financial institutions.
• The Partnership for Prosperity program,
  sponsored by presidents Bush and Fox included
  this link as one of its goals.

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II. Initial agreements

• As recommended by the Cross Border Council, the
  service will abide by the rules, procedures and
  formats of each country.
• Central bank regulations.
• NACHA.
• Cecoban TEF.
• Both Central Banks have to recover their total
  costs, plus an internal rate return.
• The Total cost of transactions are paid by the
  originator bank.

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III. The service

• The Federal Reserve offers the service under the
  name FedACH InternationalSM Mexico Service.
• The Federal Reserve of Minneapolis (USGO) and
  Banco de México (MGO) are Gateway Operators.
• We have a link only in one direction for
  payments from the US to Mexico.
• There is only one modality the US bank sends USD
  and the beneficiary receives MXP (Fix to
  Variable).

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III. The service

• The service is tailored to recurring payments and
  other payments that are not time critical, such
  as
• Government payments,
• Family remittances (only for account holders),
• Payrolls from companies with employees in Mexico,
• Small and medium-sized businesses with
  cross-border interests,
• Insurance loan lease payments pensions
  annuities
• Etc.

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IV. Operation

• The USGO sends an ACH payment file to the MGO in
  NACHA format.
• The same day, the USGO transfers the total amount
  of the payments to a MGO account in a
  correspondent bank.
• The MGO buys pesos from an FX operator. The rate
  is a standard wholesale rate published daily by
  Banco de Mexico minus 0.21.

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IV. Operation

• The MGO translates the NACHA format into TEF
  format, with the same rate it gets from the FX
  operator, and sends it to TEF.
• Payments are credited to the beneficiaries at the
  opening of the following day.

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V. Implementation

• It takes time and much attention to detail to
  start a reliable and secure service.
• There was an incident with the distribution of
  Social Security checks.
• The Federal Reserve Bank of New York
  (International Direct Deposit) asked for a link
  for Government payments, with the FRB of New York
  as USGO.
• This link started operating in October 2003.

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V. Implementation

• Some of the processes in the new link were not as
  automatic as we would have liked.
• The link with the FRB of Minneapolis started
  operations on February, 2004 for commercial
  payments.
• The FRB of New York started sending payments as
  Originating Depositary Financial Institution
  through the FRB of Minneapolis link on August,
  2004, and there is now only one channel to send
  payments.

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VI. FX rate

• Banco de México would rather not participate
  directly in the FX operation. Banco de Mexico
  sells the USD to a foreign exchange operator.
• The rate is a function of an interbank wholesale
  rate published daily by Banco de Mexico.
• We started at a 1 spread over the base rate, and
  now we've reduced it to 0.21.
• With more payments, we can get a better rate.

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VII. Legal Specifications

• The USGO and the MGO developed agreements and
  contracts for cross border transactions
• FedACH InternationalSM Mexico Service Guide Book.
• Technical specifications
• Cross Border Gateway Operator Agreement
• Price list
• Jurisdiction Agreement

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VII. Legal Specifications

• All this agreements and contracts are supported
  for the following regulations
• Operating Circular Number 1
• Operating Circular Number 4
• Operating Circular Number 5
• NACHA format specifications
• Cecoban TEF Rules
• Circular 2019/95 of Banco de México.

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VIII. Operational Specifications

• Process for exceptions
• Rejections
• Cancellations
• Notifications
• Balance Reports
• Advices
• Tracing of operations demanded for the FRB.

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IX. Settlement

• Settlement between Gateway Operators is in USD,
  one banking day before the domestic settlement in
  Mexico, through a procedure of the Integrated
  Accounting System (IAS) of the FRB of
  Minneapolis.
• Banco de México has a US Commercial Bank as
  correspondent.
• There are now very few family remittances.

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X. Remittances

• There is a huge number of family remittances from
  the US to Mexico.
• 48 million operations.
• USD 16 billion a year.
• There is a program to get more Mexicans banked,
  with identity papers issued by consulates.
• Bansefi is trying to connect savings cooperatives
  with presence in rural areas, and it has a
  program to open accounts to recipients of
  remittances.

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X. Remittances

• Mexican consulates are promoting the service
  among potential users and are encouraging banks
  to offer it.
• The cost of the service is much lower than that
  of other options.

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XI. Pending Issues

• The Federal Reserve and Banco de México will
  promote USA-MX Payments.
• Payments credited in USD (Fix to Fix).
• Format changes mandated by The Office of Foreign
  Assets Control (OFAC).
• Payments from Mexico to the US.

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