The Gates Foundation chats about Mojaloop
|Richard Harris in API Wednesday, November 1, 2017|
Open source payment handling tool, Mojaloop, has been released by the Bill and Malinda Gates Foundation.
Responses are from Kosta Peric, Deputy Director, Financial Services for the Poor, Bill & Melinda Gates Foundation.
ADM: What is Mojaloop and what problems does it solve?
Peric: Mojaloop is open-source software that was designed to accelerate the availability of financial services to the world’s poorest people. It is named after the Swahili word “moja” for “one” because it provides the blueprint that can help loop digital financial providers and customers together in one inclusive system. The Bill & Melinda Gates Foundation and our partners released Mojaloop on GitHub, where it’s available now for developers to use and adapt.
We created Mojaloop to help meet the needs of the nearly 2 billion people around the world who lack access to basic financial services, such as bank accounts and tools to send and receive payments digitally. Without these tools, they miss on out saving money, building credit and escaping cycles of poverty. We know that these services can boost personal and national economic growth. In fact, research by the McKinsey Global Institute shows that these digital tools could add an estimated $3.7 trillion to developing-country economies and $4.2 trillion to the balance sheets of financial providers in less than a decade.
Digital financial services, like mobile money, have emerged in nearly 100 countries, but they’re not growing as fast as they could, in large part because of a lack of interoperability between digital financial services and payment platforms. It can be costly and complex to build these inclusive systems. Mojaloop can simplify and reduce the cost so that banks and other providers can develop tools that meet the needs of developing markets. It joins other promising digital financial software, but it’s the first to extend interoperability beyond mobile money providers to banks and merchants in a way that specifically meets the needs of the poor.
ADM: How does it work?
Peric: Mojaloop uses four main components to bridge all the digital financial products and applications in any given market. The interoperability layer connects bank accounts, mobile money wallets, and merchants in an open loop. A directory service layer navigates the different methods that providers use to identify accounts on each side of a transaction. A transaction settlement layer makes payments instant and irrevocable. It also has components that protect against fraud. Mojaloop was designed with the highest security systems in mind and already works with existing banking systems such as ACH (Automated Clearinghouse) and RT-RPS (Real Time/Real Payments systems).
Developers can use the code whole or adapt it to build payment platforms that connect all customers, merchants, banks, providers, and government entities in a country’s economy. For example, when a customer receives a paycheck and then spends some of the money to cover her children’s school fees for the month, the open-source software is the bridge that makes the customer’s digital wallet sync up with her employer’s bank account and her school’s bank account to complete the transactions.
ADM: How is developing payment systems for the poor/unbanked different than developing payment systems for other markets?
Peric: Systems for the poor must be safe, secure and affordable, so that digital money can be exchanged as freely and fluidly as cash. Central to our mission in designing Mojaloop are eight core principles that outline how to build an inclusive, digital payments platform that serves the poor on a large scale. These principles - including push payments and immediate funds transfer, same-day settlement, and open-loop relationships between accredited participants - echo and stand alongside principles drafted by the World Bank, G20 and other international organizations committed to digital financial inclusion. No current payments system provides all these elements in one place.
ADM: What are the benefits of adopting an OSS model in developing countries? How is the OSS complementary to existing efforts in those markets?
Peric: The Gates Foundation decided to make this software open source because we believe it can help the fintech community rapidly advance financial inclusion. With open-source software, a worldwide community of developers can help improve quality and security almost immediately, and business users can customize it for their needs. Also, users aren’t limited to proprietary data formats or requirements, and it’s free to use. We are inviting any developer to explore its implementation to drive greater gains for the world’s poor and the businesses that serve them. We expect this tool to stimulate innovation in digital financial services across Africa and globally and be adapted to local contexts and infrastructures.
ADM: Is this software different than other payment schemes like Bitcoin, PayPal, and MPesa?
Peric: Mojaloop is different from a lot of other promising digital financial tools and systems because it is a model that is available to any company at no cost, and it’s designed to enable total interoperability.
Bitcoin, for example, is a digital currency operating on a decentralized network called blockchain. Transacting in Bitcoin allows users connected to the internet to transact payments without knowing each other and in relative anonymity. Our principles that guide Mojaloop describe a payment platform that uses national currencies, interconnects financial services providers in a country or region-wide payment system, and includes attribution of transactions to customers so that customer history can be built and so that anti-money-laundering and fraud detection mechanisms can be run.
Paypal and MPesa are also excellent examples of digital payment systems that successfully serve their customer segments. Both of these systems require all parties to be customers. The Level One Project aims for interoperability, so that customers of any provider on such systems can transact with other customers of another provider without having to know by which provider they are served.
ADM: How does Mojaloop utilize blockchain?
Peric: The software relies on the Interledger Protocol, a distributed ledger technology solution for transferring funds between multiple providers and across their individual systems, to operate. It is not a blockchain but uses some key concepts from the blockchain technology, such as a decentralized design and cryptography-based security. The software aims to provide attributed currency transactions, as opposed to anonymous transactions, as the code will be implemented in accordance with country and regional regulations related to payments, such as identity and “know your customer” (KYC) processes.
ADM: What digital payments expertise does the Gates Foundation have to lead the design of such a system?
Peric: Over the last several years of developing Mojaloop, the foundation has taken lessons learned from traditional and emerging payment systems, engaging several hundred stakeholders in more than 25 countries, including those in the private sector and financial services/digital payments industry. This knowledge, captured in the guide called “Level One Project” informs the investments we make and the partnerships we build to help extend digital financial services to the world’s 2 billion unbanked people.
Our approach with Mojaloop is based on well-understood technology and draws on the experiences of re-engineered national retail payments systems in countries as diverse as Mexico, Peru, Australia and Jordan. Our work draws specifically on the expertise and experience of several technical partners.
We know that our code isn’t a silver bullet, but we believe it is a huge step toward reducing historic barriers to interoperability and the accessibility of digital financial tools for the world’s poor.
Services for the Poor, Bill & Melinda
ADM: Who worked on developing this open-source software with you? How do your API product development partners relate to this project?
Peric: The foundation convened leaders in fintech and mobile network infrastructure to create a set of shared technology assets for the public good. The first asset is a set of APIs developed by Ericsson, Huawei, Telepin, and Mahindra Comviva, which was released in July. The APIs allow mobile money providers to establish interoperability with one another.
To build Mojaloop, we gathered a diverse and innovative team of financial technologists: Ripple, creators of the Interledger Protocol; Dwolla, an API and payment transaction platform provider; ModusBox, a cloud and security specialist; and Software Group, a digital financial services integrator that focuses on financial inclusion and developing markets. We also worked closely with Crosslake Technologies to ready the software for its home on GitHub, where any developer can access it.
ADM: What is the ongoing role of the Gates Foundation in the management of Mojaloop?
Peric: We support a community manager role for the code to ensure that people who are interested in using it are able to get the information they need to understand it and start to build with it. We will manage pull requests using the core question that guided our investment in the initial development of Mojaloop, which is: Will this help accelerate the development of open-loop, pro-poor digital financial systems?
ADM: How can new developers get started with Mojaloop?
Peric: Any developer can access the software on GitHub to explore it, use it to build or adapt products and services, and offer updates to the software itself. We foresee it having many different applications. For example, a central bank may commission the use of Mojaloop by their commercial partners to speed up the deployment of a national payment gateway. Or a fintech startup can use the code to understand practically how to comply to interoperable payment APIs. Any developer who needs help in understanding or implementing it can also contact us through the Mojaloop website, mojaloop.io.
With Mojaloop in the public domain, what happens now is uncharted territory. Our hope is that it opens up new possibilities for innovation and inclusion, building an economy that includes and benefits everyone.
About Kosta Peric
Kosta is currently deputy director, Financial Services for the Poor, at the Bill & Melinda Gates Foundation, leading the Level One Project initiative to foster deployment of payment platforms to serve the poor. Previously, he was the co-founder and leader of Innotribe, the SWIFT initiative to enable collaborative innovation in the financial industry. At SWIFT, he was also the chief architect of SWIFTNet, the backbone worldwide secure network currently connecting 8,000 banks and 1,000 corporations, and servicing daily the world economy.
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