This Organization is Funding the Finternet, One Fintech at a Time

To most of us, transferring money happens in the blink of an eye—or press of a button, tap of a card or scan of the face. Even standing in the mere vicinity of a payment processing machine can inspire Apple Pay to automatically present itself, ready for duty.

But while payments have become near-second nature in the majority of established markets, the same luxury does not extend to the more than 1.4 billion people around the world who don’t have access to some of the most basic financial services, no less digital ones. Commonly known as “underbanked,” many of these individuals live in rural regions, such as remote mountain or jungle areas in Mexico, and are served by community banks that don’t have the infrastructure to engage in cross-border or even local digital ecosystems.

That’s according to The Interledger Foundation (ILF), the organization behind a global initiative to build a digital, interconnected network that gives people around the world access to easy payment options, no matter their location or banking institution.

“At the individual level, the current [payments ecosystem] creates huge limitations on upward mobility. On a socioeconomic level, it stands in the way of the emergence and growth of entire economies,” said Briana Marbury, CEO of The Interledger Foundation.

ILF’s Interledger Protocol (ILP) is at the center of this mission. The open-source and neutral protocol is built to interact with existing and future systems, rather than acting as a roadblock that limits financial openness. Because of that, technology companies, banking institutions and governments can use it to introduce new interoperable payments pathways for transferring money between parties.

This level of interoperability is one of the missing links to “the Finternet”–a term recently coined by BIS to describe a financial ecosystem that operates much like the internet to lower barriers to entry for individuals.

Breaking down barriers for individuals first requires breaking down barriers for fintechs.

Every country and region is at a different point in the evolution of its financial ecosystem. Some governments have launched large-scale digital public infrastructure (DPI) projects–built with interoperability as a key cornerstone–such as India’s India Stack. But most governments have not invested in robust DPI and therefore don’t have payments networks that are compatible with emerging online payment modalities or invite constant innovation. Instead, payments rely on closed networks that inevitably create silos, fragmentation, and walled gardens that keep financially inclusive (and other) new solutions out.

For fintechs and financial institutions interested in entering into markets that don’t have DPIs– and want to introduce innovations that would benefit large swathes of their populations–the barriers to entry are high.

According to Marbury, some of these barriers include restrictions by regulators, policymakers and other government entities. It’s also time-consuming and costly to develop technological workarounds for closed, siloed payment networks.

ILF has set out to remove some of the financial barriers that organizations face when bringing new payments capabilities–such as instant and cross-border payments–to emerging markets. By footing the bill for companies to leverage its ILP when building new infrastructure, the Interledger Foundation seeks to introduce a global financial ecosystem with inclusivity at its core, one fintech at a time.

“We’re encouraging organizations that transact or receive payments to apply for financial grants in support of building interoperability into their financial infrastructures,” said Marbury. “We’re offering up to $250,000 per organization to offset the cost barriers associated with developing the necessary technical infrastructure to connect to the ILP and expand our global interoperability network.”

Making the financial case for financial inclusivity.

The Interledger Foundation envisions a world where making payments can—and should—be as simple for someone living in a big city as someone living in a remote region. But when companies think about this level of financial inclusivity, they often consider it a strictly ESG initiative. Even the more purpose-driven among them can’t always justify catering to underbanked regions or populations if they can’t create new long-term revenue sources.

But these organizations often overlook the potential that can result from mobilizing millions of small wallets. Processing a critical mass of smaller transactions over time adds up. For fintech companies, this is a relatively untapped source of revenue, meaning that those who navigate the obstacles of market entry now will have a significant advantage over competitors who enter the game later.

Marbury says that today, most financial services providers realize there is a big opportunity when reaching millions of small wallets, all while promoting financial inclusion.

But just because they’ve recognized the opportunity doesn’t mean they’re pursuing it. The Interledger Foundation hopes to close this gap.

Interoperability at Scale

The Interledger Protocol, co-created by early Bitcoin contributor Stefan Thomas, is an integral building block to the growth of the larger global payments ecosystem. Its design is based on TCP/IP, the protocol that defines the internet, and introduces universal standards for creating any conceivable payments use case, anywhere in the world.

According to Marbury, Interledger can handle up to 1 million transactions per second, per participant, as opposed to 60,000, which is the industry standard today.

“The Open Standards we steward are governed and developed in collaboration with participating financial services providers, community members and the relevant standard bodies like the World Wide Web Consortium (W3C),” Marbury says. The ILP creates a common language for payments transactions that do not exist today.

Funding fintechs’ work to embrace ILP is only the beginning of Marbury and ILF’s goal to create payments interoperability at scale. The Interledger Foundation is also working with leading organizations including the Mojaloop Foundation, backed by the Bill and Melinda Gates Foundation, and currently has active initiatives underway in Mexico, the United States, Jordan, South Africa, Singapore and Amsterdam.

“Our current initiative to fund fintechs that leverage the ILP is one of several ways we’re working to grow the network,” said Marbury. “By eliminating the financial restrictions to building interoperability into their project roadmaps, we’re increasing the chances that more companies, government organizations, wallet providers, and financial institutions will revamp their financial infrastructures with financial inclusion in mind.”

Organizations including Chimoney, Thitsaworks and People’s Clearinghouse in Mexico are among several early fund recipients. Each is spearheading payments projects that will bring underserved populations more opportunities while expanding the reach and user base of the Interledger Foundation’s interoperable network.

The Roadmap to Global Financial Inclusion

While ILF has laid a sound foundation, Marbury recognizes that building a global financial system that more closely mirrors the internet as a whole won’t happen overnight.

“Our goal is to eliminate the friction in global payments to ensure quick, cost-effective, and seamless transactions regardless of where the transaction is coming from and where it’s going,” she said.

When asked about ILF’s future roadmap, Marbury shared that, in addition to its work in the financial sector, the company is also working with entrepreneurs, educational institutions and government agencies to continue “activating new communities and bringing new viewpoints into the conversation.”

ILF’s work with these organizations, alongside digital financial services entities including digital wallets, mobile money providers, banks, savings coops, neo-banks, ecommerce retailers and donation platforms, will be what transforms a fragmented, complex and costly payments ecosystem into “a truly globalized economy with participants from around the world,” said Marbury.