Q&A with Mojaloop Foundation Director and Technical Governing Board Delegate Miller Abel, deputy director and principal technologist at the Gates Foundation
In 2017, the Bill & Melinda Gates Foundation started the Mojaloop open source project to support building open, interoperable solutions that improve access to digital financial services for the underserved. Now, the project has evolved into the formation of the Mojaloop Foundation, a charitable organization that will support the ongoing development and adoption of Mojaloop. As a non–profit Sponsor member, the Gates Foundation will continue the work initiated by the Mojaloop open source project and engage with digital financial service providers, regulators, NGOs and governmental offices looking to address the critical challenges faced by local underserved communities.
Miller Abel, deputy director and principal technologist at the Gates Foundation, will serve on the Mojaloop Foundation’s inaugural Board of Directors. We interviewed Miller to get a sense of what he hopes the Mojaloop Foundation can achieve and the potential impact of open source software on individuals’ access to financial services.
The Gates Foundation has obviously been instrumental in the development of Mojaloop as an open source project and open source community. Why create a Mojaloop Foundation?
MA: Developing Mojaloop was a big challenge. Mojaloop is a solution for digital payment interoperability that never existed before. Achieving that was a great use of our resources as philanthropy – to create a solution that could accelerate digital financial inclusion that nobody else could or would at that time.
We kicked off the initial development project almost exactly four years ago, in May of 2016, with a set of five collaborating companies. We released the first version of the open source software in 2017 and announced its public availability at SIBOS in Toronto.
Now, it’s time to move the open source project to a home where others can assume leadership and help contribute to the success of Mojaloop as a durable public good, and solution for interoperable real–time retail payments. We want more organizations to join the Mojaloop Foundation. We need diverse voices and contributions to achieve the financial inclusion mission. We are seeking philanthropic, financial services and technology organizations to be part of this movement.
Why do you believe open source is the best solution for interoperability? Financial Inclusion?
MA: Open source software has an advantage in that it lowers the initial cost to enter, and it has the effect of lowering the total cost of ownership for someone who is deploying and maintaining a system in ways that, given that the open source methods are now about 30 years old, we’re reasonably familiar with now. We’ve been sharing software for a long time, but really, it’s been a formal thing since the 1990s.
We’re cooperating using open source methods because it makes sense that no one is going to own that open loop interoperability layer, rather it should emerge as a public utility serving everyone. A national retail payment system should operate at the lowest possible cost to enable the lowest practical cost of access by individuals and the merchants, both small and established, that they depend on for their economic security.
With financial inclusion being more top of mind, adding payment interoperability will provide more people with access to financial services, but it may also create customer value that we hadn’t thought of before. We’re assembling these different motivations together, and their different focused use cases together, into a common community to work on the interoperability layer that they should all agree on, because they all depend on it.
Importantly, if we focused only on connecting merchants or high-street banks, we would not provide much advantage to the underbanked. And yet when interconnecting institutions that serve poor people, we must also enable the connection of institutions who pay them and who they must pay. Economic vitality depends on universal access and reach between all citizens.
Can you outline the payment ecosystem and where Mojaloop resides in that ecosystem?
When you look at the different layers of the ecosystem, look at it like rungs on a ladder.
At the bottom rung is the rules layer, which are regulations that a country provides, or the rules that a payment scheme will write for its members, and that the members may write for themselves so that they know what they’re going to do for each other, who benefits and who is responsible.
The next rung up is the rails layer – which is really the technology piece that connects everyone together in a payment scheme. The rails are where Mojaloop is really focused. It’s how we can make interoperable payment clearing and settlement functions available as open source software. We see these foundational bottom two rungs of the payment ecosystem ladder in cooperation space. Regulators, operators, and other stakeholders cooperate to enable interoperability under national regulation.
The next higher rung is the account holding layer, which we consider part of the competitive space, and that includes who is going to hold customer funds, operating under prudential regulation to be sure the funds are safe, but also providing access to payments. Individual account holders gain that access to pay by having that account institution connect through the rails and be subject to the rules, which is cooperation space.
Above the accounts layer is the apps layer, and that’s where we think the real unlock is…
The app layer is where the innovation happens – reflect on ride-sharing or agriculture-related apps, where ’” ‘’they’re not holding onto funds. What they’re doing is giving you a way to use those funds in a service mode with an embedded payments ceremony. That is, you don’t need to pull out a credit card or write a check to pay for these services. You consume the service and pay for it as part of that experience, and in many markets that has shown itself to be the unlock for the expansion of digital payments. It’s happening in India at scale, where people in the lower economic quintiles participate as suppliers and consumers in the new “gig” economy. Grab, GoJek in Indonesia, pay-as-you-go solar electricity in East Africa are all examples of the app layer at work. If we allow apps that are relevant to everyday use by people of modest means, to connect to the digital payment system, we enrich people’s lives with novel solutions to their everyday problems. We can’t expect banks and other financial institutions to create a ride-sharing or agricultural supply chain system!
The accounts layer can be seen as the host for apps for things like supplemental nutrition programs and others that are interested in sending or receiving payments, apps that provide a rich experience, and that depend on the accounts layer and the rails layer to provide reach. So, there’s a point where each one of these different types of participant can create more value for the economy, and incidentally for themselves, by contributing to the public goods by collaborating in the Mojaloop community.
What the Mojaloop Foundation is now doing is inviting all of the organizations interested in implementing payment interoperability to the “rails level” where Mojaloop provides the blueprint for inclusion and interoperability. That way central banks, mobile wallet initiatives, banks, and MFIs, and the poor who depend on these institutions, are truly inter-connected with each other, and to all the financial services available in an inclusive economy.
What are the advantages of an open-loop system versus the closed-loop system in creating payment systems?
Universal financial inclusion can be achieved if digital financial services became a utility that can be used by all at the lowest practical cost. And transaction cost is indirectly proportional to the volume of transactions a system processes. To achieve acceptable volumes, organizations that operate payment systems need to be able to simplify and reduce their transaction costs in serving their markets at a national or country-level scale.
It’s not like the public internet where anybody can join by simply getting an IP address — what we’re describing is a permissioned scheme. For example, credit card network schemes are a combination of private rules and privately permissioned access that allow a bank to issue a credential on the credit card network. That credential can be accepted by any merchant that is backed by a bank that is also a member of that same private network. This is what we mean by closed loop. A card account issued under one brand cannot be accepted by a merchant that honors only a different brand. Exclusivity also comes with added wholesale costs to participants that must be recovered (typically from merchants as service fees, and consequently from end users as higher prices).
Checks are open loop, by contrast. The national ACH system is open to all banks in a market for next–day and second–day clearing and settlement of debit instruments. So, you have two institutions that don’t have to make a deal with each other in order to clear and settle payment orders for their customers. They can just join the public clearing system under a standardized set of operating rules. So, there is a simplification there.
Mojaloop is designed specifically to be open-loop. We intend that any licensed financial service provider can connect to a system that utilizes the Mojaloop software, regardless of the domain in which they exercise their account holding service, and regardless of whether they are a public, government, or private institution. So, if they are a mobile money provider, if they are a bank, if they are a microfinance company, or a government agency — they can all connect. So, we end up with what we call “cross-domain interoperability.” This open interconnection is intended to ensure that the poor have as many opportunities as possible to participate in the digital economy.”
Talk a little more about the level of cooperation that you think can be achieved by connecting to Mojaloop.
We want to enable an appropriate interface between commerce and charitable purpose. Poor people benefit when banks, mobile money operators, microfinance companies and merchants, operating in an emerging market, connect to each other. Without this hub-and-spoke arrangement, we could end up with 15 different ways of connecting to these institutions through a thicket of bilateral arrangements—and that doesn’t feed cooperation or lower costs.
And bilateral arrangements open the potential for an unbalanced way of activating commercial companies where end users have a highly uneven experience of who they can pay and what financial services they can access, which depends unnaturally on where they keep their funds. Bilateral arrangements can also be used as a tool for exclusion and rent seeking. A common payment clearing system that connects all players offers uniform reach to financial services and payments while preserving the ability of end users to benefit from unique financial service offerings, beyond simply making payments from a transaction account.
So as Mojaloop anticipates these very different types of financial service providers connecting to a common clearing system, we need to include this diversity of voices in the building of the software and its APIs. What we’ve said is, “Let’s give them a place to come and talk to everybody,” where we’re not saying that they’re somehow all the same business or that they should donate all of their proprietary knowledge into open source. Banks and mobile wallet providers are quite different in many respects, and we value their differences. But as far as payments are concerned, and at the payment switching layer, we can look at them as falling into a category of DFSP (digital financial service provider) that has a lot of similarities in the way that they work, and that we can find ways in which they can cooperate through that layer, without denaturing their unique business and without giving them an outsized advantage, with respect to other companies.
What stands out to you about the initial Sponsor members of the Mojaloop Foundation?
If you look at the organizations that are joining, even the commercial ones are more aligned to low- and middle-income consumers than to the top — Google Next Billion users, for example. And then, of course, on the charitable side, we have Rockefeller, Omidyar Networks, and the Gates Foundation, where serving the poor is our central mission. These commitments will help ensure the Mojaloop Foundation’s mission, to support universal financial inclusion, remains strong and vital as it grows.
And there’s also an opportunity here for systems integrators. There is also an opportunity for the traditional aggregators to continue their business while, instead of doing bilateral connections or multilateral connections between these institutions that are isolated from the banking system, we can enable them with Mojaloop software to create a common platform that connects both banks that are large enough to make their own connections and those that are so small that they need facilitation. But we do it in a way that both small and the large institutions can facilitate payments between each other’s customers as though they were all part of one large system, because they are.
The advantage here, and I think it’s a different frame, if you will, on some of the traditional businesses where when the infrastructure gets better, some of the things that you had to do to make it good enough, those things go away because it’s all been done for you by the public utility. That doesn’t mean that you’re completely excluded now from the value chain, but that you can take on a different weighting to the work that you did before. Bring new value and services to under-represented populations of users without recovering the costs of bilateral interconnection.
So it paints the opportunity, especially for our systems integrators, cloud providers, aggregators and other companies that will provide connection services and technical assistance. Mojaloop is a reference model that’s being used in different ways, and so there’s already some examples of work being done, and in the end, it will enable that connection to go far wider because of the interoperability layer.
Any final thoughts?
I would leave you with this: When we say interoperability, we mean true cross-domain interoperability across payments platforms—for example, small credit unions and savings groups connected to large commercial banks connected to mobile money operators, and potentially across borders and across currencies—all with the support of national regulators and central banks. And with all those players contributing to increasing financial inclusion and economic growth for the poorest people.