# **Box 2. United States-Mexico. Federal Reserve Clearing House (FedACH) International**

A potentially significant addition to the remittances market between the United States (US) and Mexico is the FedACH International Mexico Service. FedACH provides a “public highway” for bulk transactions between banks in the US and Mexico. This clearinghouse is operated by the Federal Reserve System and the Central Bank of Mexico and reaches every bank in both countries as potential points of payment origination and receipt. Currently, this system works only from the United States to Mexico. Operators, however, plan to have the system working also in the direction of Mexico to the United States sometime in 2005. The cost to banks for using the FedACH system is estimated at around US$ 0.67 per transaction. One of FedACH’s limitations is that it operates only from account to account, as opposed to “cash to cash.” <!-- Start of picture text --> U. S. A. Mexico<br>U.S. Bank FedACH Banco de Mexico Cecoban Mexican Banks<br>The Mexican<br>Cecoban banks receive<br>The U.S. Bank The Fed The RGO<br>receivevs the the files and<br>processes client processes the receives the files information close the<br>transfers and file and sends and sends the<br>sends a file to the transfers to information to and sends the operation with<br>transfers to Banco de<br>the Fed. Banco de Mexico Cecoban**.<br>the banks. Mexico at 9:00<br>a.m.<br>Banco de<br>The clients<br>Mexico's Agent<br>have the funds<br>Bank sells Agent Bank available at<br>dollars and buys 9:00 a.m.<br>pesos.<br>* The whole process is conducted in three days<br>** Camara de Compensacion Electronica Nacional<br>Source: Hernadez-Coss (2005)<br><!-- End of picture text --> _There are several advantages to shared payments systems platforms._ They can reduce the cost of remittances. Currently, major transfer agents and banks use their own (costly) proprietary systems to send remittances. If funds were channeled through a single low-value payment system, the cost per transaction could drop. Furthermore, the network effects of shared systems could provide easier access to disbursement points for the remittance recipients. One option for consideration is to allow post office branches to engage in payments by connecting post offices to an open network through which payments can be made and received. The ability to receive remittances from any bank through the post office has the potential of greatly increasing the value proposition to the remittance recipient. In addition, directing remittance payments through a broader electronic infrastructure is likely to reduce the cash-dependency of local payments. It would help pave the way for increased penetration of electronic payment instruments, such as credit and debit cards, which again would prepare the recipients of remittances for future cost-reducing innovations, such as card to card remittances.

_The national IT platform that will soon be completed by Lanka Clear will also open new opportunities for expanding interconnectivity among banks._ Lanka Clear’s Check Imaging and Truncation System will involve connections with 11 regional IT clearing centers.<sup>15</sup> Once tested and operational, this electronic platform could be made available to commercial banks for a fee avoiding unnecessary and costly duplication of proprietary systems.

16