ModusBox was recently added to Mojaloop’s new Business Directory, “a repository of businesses that understand and demonstrate the ability to deploy and maintain Mojaloop.” Only four and a half years ago, the Bill and Melinda Gates Foundation initiated a project with us to connect financial institutions via interoperable payment networks aligned with the foundation’s Level One Principles. In 2018, that work resulted in the launch of Mojaloop – the world’s first open source software for interoperability in real-time payment networks. Today, ModusBox remains a core member of Mojaloop’s development and steering teams, committed to building and contributing ancillary products that fuel participation and financial inclusion.
In this article, we’ll share why we contribute to the open source community and why open source is critically important to the sustainability of financially inclusive payment networks. In part two, we’ll illustrate our experience supporting Mojaloop hub operators and driving participation among financial institutions (FIs).
First, a little about our DNA at ModusBox
ModusBox is built around two strands of DNA. We specialize in digital transformation, cultivated by years of system integration consulting and product development. The second half of our pedigree hails from developing disruptive financial inclusion services, such as m-pesa, and now through real-time payment (RTP) participation.
As the financial industry progressively adopts an inclusive mindset, we have observed that the meaning of “financial inclusion” has simultaneously become diluted from overuse. It has become a marketing buzzword that focuses on providing access to financial services that are delivered in a responsible and sustainable to people who fit traditional “banking customer” profiles. Because of this, we want to raise the bar on what we mean by financial inclusion.
At ModusBox, financial inclusion means equitable access and usage of safe and connected savings, credit, insurance, and payments.
We encourage you to learn more about this redefinition by reading this blog from our colleague, Steve Haley.
The Level One Project and inception of Mojaloop
Our unique makeup attracted us to a project that the Bill and Melinda Gates Foundation chartered in 2017. Years of research from the foundation resulted in the Level One Principles – a creed for building financially inclusive payment networks, including sufficient thought for avoiding the worst “unforeseen consequences.” Alongside many well-known industry participants, including Ripple and Dwolla, the design for the world’s first open source, real-time clearance and settlement management engine commenced.
In part two, we’ll share more of our experiences supporting hub operators and FIs. For now, it’s important to understand that Mojaloop’s open source model makes it unique among interoperable payment systems and enables openness for participation.
What makes open source critical to true financial inclusion?
The Mojaloop community understands and believes that the next disruptive step towards driving financially inclusive services is enabling interoperability. Working together as a community rather than just one or two companies means that we will design solutions that truly meet the needs of real people who rely on the financial services offered by their FI.
An open source accessibility model effectively levels the playing field for participants. This enables two important differences when compared to proprietary payment systems. First, open source models allow all classes of financial institutions to contribute to the design and development process. Secondly, but equally as important, open source enables FIs to participate as “tier one” members. We refer to this as impedance matching between classes of financial institutions – whether a global multinational or a community-based microfinance organization. The result is an ecosystem that welcomes everyone, offers a wider range of services, and prevents dominant players from pricing out smaller participants by building a solution that favors big banks – a behavior repeatedly observed in proprietary systems.
Four (more) benefits of open source
Besides the chief fact that open source is essential for financial inclusion, there are several other benefits that we have identified over the years:
- Open source development contains a built-in skills improvement plan for our team members. The process allows participants to collaborate with key individuals outside of their organization performing at the top of their respective skillsets.
- The open source community is where design patterns, technology, and emerging ideas are shared – allowing experts from different payment companies to improve their work.
- We aren’t experts at everything. Novel concept, right? By working collaboratively as a community, ModusBox can focus on the areas where we specialize. This offers us the best return on our investment and empowers the community as a whole to maximize its efforts.
- Open source allows for and encourages commercial support. Contributed pieces are often supported by the community and therefore require less effort from any single adopter relying on it.
Driving sustainability through economies of scale
Much is written regarding the viability and sustainability of open source software. Open source harnesses the power of collective work, has proven to enable transparency and better security, reduces IT costs, and more. And, open source is gaining popularity as the standard for sustainable software development in the financial technology industry.
In the financial industry specifically, the most powerful benefit to open source design may be the creation of disruptive interoperability. The market has proved that efficiently interoperable RTPs can drive volumes and services for purchases that include financial services like insurance, energy, and retail goods. Do you remember when mobile phones only worked within the carrier’s network? There was a time when they were closed-loop with walled gardens for internet access.
Sometimes we can be slow to learn.
Real-time and interoperable payments have been proven to increase the net transactions within an ecosystem. Open source technology reduces both the capital expenditures and, more importantly, the operating expenses of running RTP schemes, thereby benefiting the whole ecosystem from the increased net transactions. Check out this report from the GSMA on the impact of mobile money interoperability in Tanzania.
In turn, the net benefit to the system drives additional scale, promoting viability for smaller hubs and allowing larger payment schemes to leverage economies of scale. This is vital to true financial inclusion because it enables “free” services to the end-customer for domestic services and rates below world bank cross-border targets.
Understanding how open source software drives economies of scale is the final hurdle for most software developing enterprises considering this model. They must be able to answer the question, “How do we survive without maintaining control over proprietary software?” Scale will drive a shared responsibility for supporting the ecosystem – a model that has proven to be effective with Linux. In the financial technology open source community, enterprise support contracts allow those who benefit and rely on the solution – in this case, the hub operators of the scheme – to support the technical partners in maintaining and evolving the product which in turn helps hub operators evolve their offering.
Coming up next
In part two, we’ll discuss our experience in the early stages of Mojaloop development, supporting payment hub operators, and driving participation of financial institutions in Mojaloop-based networks. Visit our Open Source Projects page if you would like to learn more about Mojaloop or other solutions we have contributed to the open source community. Interested in joining the Mojaloop community? Contact a member of our team today or join us at one of the upcoming quarterly Mojaloop community meetings.