Kelly Robertson
The World Bank has estimated that nearly two billion people in developing economies lack bank accounts and miss out on the benefits that basic financial services provide. These unbanked and underbanked populations have prompted development of novel services, such as mobile money on cell phones, that have rapidly expanded over the last two decades.
The proof that providing access to basic financial services works is visible in Kenya, where approximately 194,000 households have moved out of extreme poverty due in part to their access to the mobile money platform M-Pesa. These sort of digital financial services are now available in nearly 100 countries according to GSMA, an organization representing mobile network operators. However, global expansion of these services has been hampered, in large part, by a lack of interoperability between digital financial services and payment platforms.
Also, businesses struggle to invest adequately in complex technology while maintaining a commitment to low-cost, inclusive services. This has led to a prevalence of consumer payment options that are out of reach for many people in developing economies, or which limit customers’ ability to transact across products, banks and borders. These and similar challenges have dissuaded many companies from expanding into developing markets altogether.
Enter Bill & Melinda Gates Foundation
The Bill & Melinda Gates Foundation is looking to tackle that problem, and has teamed-up with blockchain platform Ripple, as well as a few other fintech developers — including Dwolla, ModusBox, Crosslake Technologies and Software Group. The result is an open-source software, called Mojaloop — the name that builds off the Swahili word “moja” meaning “one” — which is designed to be used for creating payment platforms that will help unbanked people around the world access digital financial services.
The solution provides a reference model for payment interoperability between banks and other providers across a country’s economy. It is available now, free-of-cost, for software developers to adapt and banks, financial service providers and companies to implement. In other words, Mojaloop establishes a blueprint for connecting today’s financial services sector, and can be used as a solution to barriers that banks and providers seeking interoperability have traditionally faced.
Also, it was designed to serve as a model for national payment switching systems that, for example, enable an individual’s digital wallet to connect with her employer’s bank account and her children’s school account to complete monthly transactions. The code can also be applied to adapt and improve existing services.
“Interoperability of digital payments has been the toughest hurdle for the financial services industry to overcome. With Mojaloop, our technology partners have finally achieved a solution that can apply to any service, and we invite banks and the payments industry to explore and test this tool,” Kosta Peric, Deputy Director of Financial Services for the Poor, at the Gates Foundation, said in a statement. “Just as the internet revolutionized digital communication, open-source solutions like Mojaloop can spark innovation and democratize access to digital payments, empowering billions of new customers and driving massive economic growth in developing markets.”
Mojaloop uses the Interledger Protocol, a solution for settling funds among multiple providers across their individual systems. As such, it can help extend interoperability from mobile money providers to any bank, merchant or government institution in a customer’s economy in a way that specifically meets the needs of the poor.
“Interoperability is necessary both for financial inclusion and market maturity, but it is a complex thing to achieve,” Benno Ndulu, Governor of the Bank of Tanzania, the country’s national bank, said in a statement. “We are excited to explore implementation of this because of how it can simplify that capability for businesses and governments, and speed up access to financial services.”
Developers can get the code from GitHub
Developers are invited to access Mojaloop on the open-source development platform GitHub. It includes four components:
- an interoperability layer – which connects bank accounts, mobile money wallets, and merchants in an open loop;
- a directory service layer – which navigates the different methods that providers use to identify accounts on each side of a transaction;
- a transactions settlement layer – which makes payments instant and irrevocable; and,
- components which protect against fraud.
The Gates Foundation will not own or implement the software, but it will be used in the foundation’s ongoing work to promote the development of “pro-poor, digital payment platforms.”
Mojaloop was created by the Gates Foundation’s Level One Project, which is aimed at leveling the economic playing field by crowding in expertise and resources to build inclusive payment models to benefit the world’s poor.
