El Salvador’s Payment Rails & How They Work – ACH, Bitcoin Integration & Digital Wallets

El salvadore has undergone a dramatic change in its payment infrastructure in recent years. From the modernization of ACH systems to Transfer365, to the adoption of Bitcoin as a legal tender, to digital wallet adoption like Chivo, mobile payments and quick remittance settlements, the country’s present rails are a result of constant experimentation over time. Through this article, we’ll understand how these rails have evolved and shaped up over time, how they benefit users and how to go about with the combination of local as well as international rails.

Understanding the payment infrastructure of El Salvadore

Let’s take a look over the various aspects of this infrastructure in El Salvador,

El Salvadore uses USD as its fiat currency for many transactions so many domestic rails also operate under the USD itself.

The Banco Central de Reserva de El Salvador (BCR) is the Central bank of El Salvadore and it plays a crucial role in the governance and regulations of the payment rails.

Key components of the present rails include Transfer365, ACH, digital wallets like Chivo, mobile payments, and integrations with Bitcoin.

Remittances make up a very important part of the economy, many households in the economy rely on the money sent from abroad, so any payment infrastructure that can lower the cost, increase speed and improve accessibility is highly preferable by the users.

ACH Systems and Transfer365

ACH stands for automated clearing house which is a system for electronic payments which are generally of lower value and are often recurring in nature like P2P or C2B transactions. In El Salvador, the ACH system has been taken to a next level with Transfer365.

What is Transfer365?

It was launched in 2021 by the BCR as a modernization initiative for the national payment system.

By acquiring an ACH, it evolved into a 24/7, instant settlement platform which is capable of many kinds of payments like P2P, bill payments, supplier and government payments. It’s made accessible by digital channels and financial entities like banks and official corporations and their agents as well.

For mobile phone number based instant payments, Transfer365 has a branching into Transfer365 Movil making the initiative more accessible.

Features and Capabilities of Transfer365

It provides instant settlements for participants and is available 24/7, 365 days.

It provides cost free transfers for many customers - especially via digital and mobile channels. The goal is to promote better financial inclusion.

It makes up a network among banks, co-operatives, savings and credit societies as well as public and private entities.

After launch, the system has become the most utilized rail in the country, it has even evolved for large volume and valuable transfers.

It helps reduce reliance on cash and is well renowned for creating inexpensive remittance channels.

Bitcoin & Chivo Wallet

El salvadore became the first country to adopt Bitcoin as a legal tender along with the USD in 2021. With this grand step, came the Chivo Wallet, which is a government backed digital wallet which natively supports Bitcoin and USD.

The Bitcoin Law and Chivo - Adoption and usage in El Salvadore

The law requires that Bitcoin can be accepted by businesses as a legal means of exchange. Chivo wallet is the facilitator of the two tenders coming together, i.e. Bitcoin and Dollar which together can be transacted via the digital wallet promoting the digital currencies’ usage. It also provides reduced as well as free costs for transactions and conversions inside the wallet.

Around half the population actively uses Chivo wallets. Business side adoption of bitcoin transactions overall has been low while individual adoption has been initiated because of high awareness and incentives. Trust, volatility and technical glitches are some of the hurdles in complete adoption.

Cross border and remittance payments in El Salvadore

Remittances are a big part of El Salvador’s inflow of funds. These remittances generally come from the US along with different countries. It's important for the country’s rails to have lower costs and less friction in such transactions. Chivo wallet was designed in a way to help with these flows by helping reduce fees and conversion hurdles. Despite its use cases and bitcoin’s status as a legal tender, the volume of remittances carried out via Chivo and Bitcoin is small. Most remittances and cross border payments still happen in USD and traditional means.

Wallets like TransFi are facilitating cross border payments and remittance solutions with a more accessible model and technology. TransFi offers quick and accessible integrations with local payments rails, easy digital assets settlements and a worldview into currencies and payments methods used all across. TransFi is helping the many countries in the global realm embrace a better future with the ease of the best services and interface at power by connecting users with over 100+ currencies, 250+ local payment methods, and 80+ digital assets, giving both senders and receivers control, speed, and cost savings. To explore tailored cross border payment solutions and local payment benefits in El Salvador, get in touch with the expert team at TransFi and expand your financial empire across the country and beyond.

Future of Payments in El Salvador

Looking forward, El Salvador has enormous possibilities of growth and potential improvement, some of these directions include;

Strengthened ACH and Transfer365 capabilities refining mobile flows and faster tractions rails to accommodate for cross border needs.

Revised Bitcoin and Chivo strategy which provides more stable and user driven incentives. This would lead to better trust and user experience.

Expansion of digital wallet usage with more integrated services and expansion of mobile and internet reach as well.

Improvements in regulatory maturity and flexibility which must provide better consumer protection and communication.

Initiatives towards financial inclusion and literacy would increase digital network penetration and imbibe trust and usability reliance among people.

Lastly, cooperative models for international transactions and cross border chains would make the country’s local rails compliant and would open possibilities for growth and development.

While, these hold as speculations and work in progress among the local rails of the country, newer fintech adoptions and private sector finance are helping with the realisation of the economies potential at a high rate. With this in mind, El Slavador is on its path towards a cashless and secure payment ecosystem!

Also read: Costa Rica’s Payment Rails & How They Work – SINPE, Mobile Payments & Instant Transfers

Frequently asked questions (FAQs)

What is Transfer365 in El Salvador?

Transfer365 is El Salvador’s modernized national payment system which operates as an automated clearing house run by BCR. It enables 24/7 instant remittances and many types of interbank transfers.

What is a Chivo wallet?

Chivo Wallet is a government backed digital wallet which natively supports Bitcoin and USD.

Is Bitcoin legal in El Salvador?

Yes. El salvadore became the first country to adopt Bitcoin as a legal tender along with the existing legal tender, USD, in 2021.

What are the limitations of Chico wallet and Bitcoin payments?

Business side adoption of bitcoin transactions overall has been low while individual adoption has been initiated and dropped because of high awareness and lack of further incentives. Trust, volatility and technical glitches are some of the hurdles in complete adoption.

How can TransFi help improve El Salvador’s payment rails?

TransFi offers quick and accessible integrations with local payments rails, easy digital assets settlements and a worldview into currencies and payments methods used all across. TransFi connects over 100+ currencies, 250+ local payment methods, and 80+ digital assets, giving both senders and receivers control, speed, and cost savings.

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