The People's Clearinghouse — Grant Report #1

Team image

Most of The People’s Clearinghouse team during a pause at our favorite library-café to keep on working for financial inclusion!

Project Update

The biggest win we’ve had is the constant validation of the project. The community banks we work with are not used to international forums or Central Bank meetings. They feel they don’t belong there. But with the help of the Interledger Foundation we’ve had the chance to tell the story of AMUCSS and how we can foster the impact of those community banks using open-sourced technology and innovation. First the Interledger Summit in New Orleans, then a meeting with the Bank for International Settlements, then another one with the vice-governor of Mexico’s Central Bank, then several others. We’ve left each and all presentations feeling we’re on the right path, and we’ve communicated that to the network of community banks which believe each day more and more in an innovative project whose impact wasn’t initially obvious to them.

But when getting into details, things got complicated. The authorities at the top of the Central Bank might have liked our project, but the bureaucratic structure still reigns and community banks are hardly considered real banking structures in standard executive meetings. So we’ve had to study tons of laws, rules, norms, and start understanding non-published customs and limitations. The ILP-SPEI implementation (SPEI is Mexico’s Central Bank RTGS system), for instance, seemed for the Central Bank like good wishes that would never actually take place. But that view changed when we brought forward a Mojaloop clearinghouse, explaining how it uses ILP and how we could eventually use ILP for remittances (as long as the settlement question is solved). So we’ve had to turn around difficulties to keep our objectives intact.

We are tightly following our timeline concerning legal procedures and technological research. We have a team studying the ILP and Mojaloop, and perfecting our model, and we will produce a pilot clearinghouse in the coming weeks. We’re only late in the business model itself, since we cannot yet be sure of a realistic budget for the implementation process of the hardware and software components of the clearinghouse and the costs that community banks and/or people can absorb for the new services the clearinghouse will provide.

Progress on objectives

Our main objective remains the same: to foster the impact of community banks by providing a digital solution to them that would allow them to receive fast and cheap remittances directly into accounts, and to provide them with a sound digital payment/transfer platform. And we’re counting on the ILP to help that objective.

However, the means to achieve that goal have had to adapt to new conditions: we believed we could concentrate on a SPEI platform (Mexico’s Central Bank RTGS system) and add an ILP layer to it. While that could happen in the future, the reality is that SPEI’s structure is bureaucratic and over-regulated, so we would spend too much time just trying to comply with it (and convincing the Central Bank about it). This has brought us to a more interesting (and quicker) solution: our clearinghouse initial transfer platform won’t be SPEI, but rather Mojaloop. Regulation for non-SPEI clearinghouses is much more flexible, and Mojaloop already implements ILP for its transfer process - so extending that use of ILP to remittances seems technically plausible. We’ve been working on a sequence diagram whose current version is part of this report. We’ll make it public when it’s ready and considered plausible by the Interledger Foundation and Infitx (for the Mojaloop side).

And we have structured a solution that uses FedGlobal (Fed & Bank of Mexico connection for sending money transfers) as cross-border settlement platform, but that requires that we specify which ILP nodes could participate in this process: they have to be direct (banks) or indirect participants (wallets) of FedGlobal and comply with certain conditions.

Key activities

First of all, we set up a wonderful legal team, with which we’ve been able to fully understand the most advantageous legal path for our project. We’re starting as a “Clearinghouse for payments between cellphones”, a figure created in 2013 that has been seldom used, but which gives us enough regulatory flexibility to implement a Mojaloop clearinghouse with ILP in the way we want to.

We set up the company for the Clearinghouse. If you think setting up a private company can be complicated, wait until you have to create a social company, where the main shareholder is an association of community banks, each with tens of thousands of rural owners (farmers, artisans, indigenous groups). The notary asked us for documents from each individual owner… but we survived and the company is ready to go.

We’ve also started the authorization process with the Central Bank of Mexico. We’re not done yet: procedure manuals and internal rules are taking a lot of our time, and it all should be ready before the end of March. We believe we have the support of the Central Bank for promoting rural financial inclusion, and we've been having several meeting with them to clarify goals and requirements.

Tech teams’ selection has been hard: we don’t have much money to offer, so we need people capable of working with ILP and Mojaloop and who believe in social inclusion and are willing to bet on the project rather than on the paycheck. So far we’ve been working on research, and February-March will be a defining moment as we’re starting our first pilot.

We carried out surveys with managers and tech teams of 23 community banks. They all agree remittances directly deposited into accounts would have a major impact on their community bank’s lending capacity. They are willing to invest in the process of achieving that. We also realized that the integration process with their core banking systems will not be easy, but we’re counting on a new core banking system produced by us that we’ll be implementing in those community banks with the most rudimentary systems.

We spent a week meeting remittance stores in Los Angeles, with enlightening results. The main point was understanding regulatory limits and how they are lived by remittance senders. So we tried to send money to a community bank account not connected to the national payment system but which itself has an account at a commercial bank (so ideally, remittances could be sent to that pooled account and then manually transferred to the individual beneficiary’s community bank account). It mostly didn’t work: AML regulations forbid sending remittances to a pooled account. We also got a clearer idea of the path we have to follow: working with wallets is the easiest path for our model, but eventually we could also be working with MSB licensed stores. Missing experiences include account-to-account procedures, among which the FedGlobal transfer mechanism which is currently only available between bank accounts of specific banks.

Communications and marketing

Isabel Cruz, CEO of AMUCSS and Andres Arauz, future CEO of the Clearinghouse, have promoted the project’s importance for community banks in several scenes (including meetings with the banks themselves, groups of migrants, a Bank for International Settlements’ meeting, and several Bank of Mexico meetings), including praises for Interledger Foundation’s social and open source based philosophy. There’s also an article about to be published at El Economista newspaper on the project. Finally, a policy brief about to be published by the Migration Policy Institute refers to the Clearinghouse project as the way to go to develop marginalized regions of Mexico and Central America. However, the official public launch of the Clearinghouse will be during the last month of the Grant for the Web grant, when we’ll have a community meeting and sign agreements with several community banks from AMUCSS’ network to promote the project together.

We’ve defined a public image for The People’s Clearinghouse, underlining its social approach in contrast with a company like “The Clearing House”. The latter works for and belongs to banks only; the former works for and belongs to the people. We hope you like it:

We’ve also prepared a short video, intended for community banks, to explain the benefits of The People’s Clearinghouse:
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What’s next?

Following our timeline, next steps will be to continue the authorization process with the Central Bank of Mexico.

To continue our research on remittances, we’ll visit Illinois and/or Texas remittance networks, and will go to Georgia, both for a meeting with the Atlanta Fed (to be confirmed) and to visit a small community, Durham, where half of the population of San Pablito lives, one of our remittance-receiving community banks, to discuss potential adoption of our remittance model.

By the final months of the grant, the detailed use case model for remittances should be ready (in paper and approved by the Interledger Foundation), using a combination of ILP and Mojaloop. This might partially depend on Rafiki’s previous launch.

We’ll be producing a Clearinghouse pilot platform in February-March with two of our main community banks, that will allow us to verify the complexity we’ll be facing in the next months and calculate costs and pricing for our scheme.

Last but not least, we’re going public at an end-of-grant event with networks of community banks and fintech specialists, in which it would be great to have 1 or 2 people from the Interledger Foundation. The event will take place in a historically-important town close to Mexico City and will be an opportunity to sign agreements with community banks to support The People’s Clearinghouse, and a chance for those from abroad to see local, rural financial leaders in action.

What community support would benefit your project?

We are currently in need of help with the following:

• Advice from the Interledger Foundation (Alex) and INFITX (Michael Richards) concerning advances on Rafiki implementations to connect ILP networks to a Mojaloop scheme.
• Advice from fellow grantees (ThitsaWorks) for a pilot implementation of a Mojaloop Hub
• Connections to licenced MTOs for cross-border transfer regulation (thanks to SumAssembly for a first proposal on this!).
• Connections to FedGlobal team (our FedGlobal remittance model will require understanding ensuing FedNow changes with them).

Additional comments

Only that we’re very grateful for this experience. Innovation in our field is not easy: there is resistance to change, not enough resources to heavily invest in innovation, and not enough connections to enter international networks of creators and tech philanthropes. The Grant for the Web and the network that comes with it has allowed our social project to take a plausible, realistic shape faster than we had planned. We look forward to collaborating with fellow grantees and with the Interledger Foundation in this adventure.