A group of non-profit organizations and tech companies including Google and Bill & Melinda Gates foundation are coming together to help developing countries in Africa and Asia build real time digital payment systems.
They announced the development of Mojaloop foundation whose aim is to develop and promote a free, open-source, real time payment platform for the public and financial institutions such as banks.
The initiative will join a growing number of digital payment platforms already in use especially in Africa.
MPesa, which was developed in 2007 by Vodafone and South Africa, lets users send and receive money using their mobile phone.
The platform, which was undoubtedly far ahead of its time, expanded its services from Kenya to countries like Egypt, Ghana, India, Tanzania and many more.
The innovation has also spurred hundreds of imitations globally. Based on data from the Communications Authority of Kenya (CAK), Kenya has about 31 million registered MPesa users. According to a study in 2016, the platform has helped raise about 194,000 Kenyans from poverty.
According to Kosta Peric, deputy director of financial services for the poor for the Gates Foundation, these largely privately-run systems are fragmented.
“Systems (like MPesa) are like silos,” Peric said. That can only mean there is high fees and friction when transacting using the system. “Imagine a mobile phone system where you can only talk to people connected to the same provider. It’s useful, but only so much.”
Mojaloop promises to be more beneficial as they will connect many banking and payment systems. This could allow MPesa to work seamlessly with other digital platforms, banks and remittance services such as Western union. The goal being to enhance the value of the existing platforms rather than competing.
Expanded digital payments are also key in boosting the global economy. According to a study by McKinsey in 2016, widespread and affordable digital finance tools had the ability to grow the economies of developing nations by 6% or $3.7 trillion by 2025; which is equivalent to adding another Germany to the global economy.
Mojaloop is modelled on digital fast payment systems which involve huge technological costs up front as well as difficult government related negotiations. These challenges have stalled or slowed down various digital banking advances in developing countries and in the United States.
Mojaloop will provide a standard digital payments blueprint to help navigate these challenges. The software is publy available on Microsoft’s Github and has a directory to identify account holders, a transfer system to route payments and a clearing and settlement layer to transfer funds among financial institutions.
Mojaloop intends to work with the country’s government and financial authorities with an aim of becoming operable across borders to further ease the global flow of finances.
Rodger Voorhies, president for global growth at the Gates Foundation, says the current crisis presented by the COVID-19 pandemic demonstrates how powerful digital payments infrastructures can be. He says that in times of crisis, poor people suffer the most. In most cases, charitable donations come to the rescue. However, in the case of the COVID-19 pandemic, international relief has been disrupted.
Digital platforms can rapidly transmit funds to the most vulnerable cases. “You [would] have a way for social engagement,” says Voorhies, “You could send money to protect people in times of crisis, really rapidly.”