March 10, 2021

A Strategy for Building Trust and Scaling Technical Capacity in an Inclusive Real-Time Payment Ecosystem

by Desire Kachenje in Banking Core Integration , Financial Inclusion , Fintech , Microfinance , Mojaloop , Open Source , Payment Management 0 comments

Tanzania is implementing a real-time payment system (RTPS). But where does this leave the dozens of small financial institutions (FIs) and their members? The benefits of RTPSs include reducing transaction costs and increasing financial inclusion. However, for the smaller system participants, introducing a new RTPS poses a new challenge – getting connected. At the recent UmojaSwitch retreat, our team presented a solution to ensure that no Tanzanian FI would be left behind.

The degree to which real-time payment systems (RTPSs) increase financial inclusion and reduce poverty in developing nations is arguably immeasurable. However, when approached haphazardly, the introduction of new infrastructure can harm a country’s financial ecosystem. The key to developing a truly inclusive financial system is to provide an onboarding solution that is trusted, cost-effective, and as simplified as possible. This requires the proper guidance from trusted partners and tools that are purpose-built to foster financial inclusion.

Leave no one behind

UmojaSwitch is a Tanzanian consortium that provides the shared infrastructure for supporting financial services and reducing the costs of doing so. The organization hosts an annual retreat, inviting C-level executives, board members, and other industry professionals from its membership to speak openly about industry concerns and innovate solutions that drive financial inclusion in the country. This year, as the country implements a new payment infrastructure, UmojaSwitch asked ModusBox to present the benefits and challenges that FIs will face and best practices to ensure that the ecosystem “leaves no one behind.”

Benefits and challenges of RTPSs

Real-time payment systems can create a positive domino effect in the economy. They enable financial institutions (FIs) to “speak with each other” in real-time and reduce the cost of transactions. As a result, the end-user fees for sending and receiving payments are dramatically reduced. As transactions become cheaper, the system attracts more users taking advantage of digital payments as an alternative to cash. This shift creates a stronger national payment system that further decreases the barrier to participation.

However, implementing a national-level RTPS is complex and poses a significant challenge to FIs – securely integrating into the system. This is especially true for small FIs, which commonly lack the highly technical skills required to create secure and reliable connections to the system. For example, creating elements that contribute to the integrity and non-repudiation of transactions requires expertise that many smaller organizations do not possess. And, without the participation of small FIs, the adoption of real-time payments is slow, and the system fails to realize the benefits of the domino effect.

Building trust and inclusion in Tanzania

At the UmojaSwitch event, we were excited to announce a new project that will build the technical capacity of local FIs to better prepare them for integrating into TIPS. The project is in partnership with the United Nations Capital Development Fund (UNCDF), microfinance institutions (MFIs),  and Savings and Credit Cooperative Societies (SACCOs) in Tanzania. These organizations represent a client base of approximately two million customers and the segment of FIs critical for strengthening the adoption of Tanzania’s payment system and deepening financial inclusion.

“For more than 10 years, we have embraced the financial inclusiveness for small to medium-sized banks as well as microfinance institutions (MFIs) through technology by providing a shared infrastructure that provides innovative and cost-effective solutions. However, the lack of a proper regulatory framework coupled with financial and technological challenges facing small microfinance institutions (especially tier 3 MFIs) made it difficult to include everyone into the ecosystem. The regulatory challenge was eased through the Microfinance Act 2018 that, among other things, mandated MFIs to have proper systems (including core banking systems) for management of their operations. Despite the mandate, the other challenge remains unsolved: technical capacity. This project comes at a very timely moment as we believe it will provide all that is needed to have everyone on board the financial inclusion boat. This is a dream come true for Umoja” – Danford Mbilinyi, CEO – UmojaSwitch Company Limited

Integral to the project is the deployment of a lab environment which simulates real-time payments across a Mojaloop Hub. The first phase of the project will include at least 21 FIs in Tanzania and provide capacity assessment, training, and onboarding of local system integrators and FIs. The goal of the project is to drive the inclusion of this small community of financial institutions as government regulators and the private sector develop models for real-time retail payment networks.

If you would like to learn more about a similar project we conducted with the UNCDF and MFIs in Myanmar, check out this 3-part blog series..

Payment Manager

Trust and training are the first steps. Tools that simplify integration and scale an FI’s technological capability are a critical next step. That’s why we built Payment Manager – a financial transaction management suite of drop-in, coding-optional APIs that helps FIs modernize their core banking technology by simplifying the integration and management of digital monies, platforms, and protocols. In Tanzania, our Payment Manager has templatized and automated many of the complex technical steps required to connect to a real-time payment hub. This enables FIs to integrate into the system faster – in some cases by a magnitude of several weeks.

Additionally, Payment Manager simplifies the adoption of other payment technologies and reduces the training costs associated with learning new schemes. It is an easily configurable and adaptable integration tool that responds to constantly evolving rules and use cases in open payment networks and banking core systems. This future-proof architecture helps FIs avoid revenue loss caused by operational issues and the complexities of certificate management that lead to potential downtime.

The future of TIPS

In his closing speech, the Chairman of UmojaSwitch, Sabasaba Moshingi, who is also the MD of TPB Bank (formerly Tanzania Postal Bank), expressed his excitement for the future of Tanzania’s FIs and its people and highlighted the importance of ensuring “we leave no one behind.”

The future of Tanzania’s financial system is bright. As the world expeditiously pivots to real-time payments, it is an example for other countries in its approach to fostering inclusion and ensuring that all of its nearly 60 million people have an equal opportunity to participate in the financial ecosystem. At ModusBox, we are excited to support Tanzania’s transformation to a modern RTPS and advocate for similar inclusive models in countries around the world.

If you are interested in learning more about establishing a Mojaloop lab in your country or for your industry, start with the resources on our website. These also include our Mojaloop Partner Program and training courses. Or, if you would like to know more about our project with the UNCDF and FIs in Tanzania, contact our team today.

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