How Ghana is moving from cash to electronic payments

In less than a decade, the Ghanaian economy has progressed from one driven almost entirely by cash and to a much lesser degree, cheques as modes of payment to one largely using a variety of digital payment platforms, covering both retail and bulk payments. Growth in the use of various emergent digital payment platforms has been rapid. GOLDSTREET BUSINESS uses information and data sourced from Bank of Ghana reports and a narrative by TOMA IMIRHE to document the ongoing transformation of the ways in which payments are made and received in Ghana’s economy

In 2018, the Bank of Ghana facilitated the passage of the Payment System and Services Bill, 2018, to guide the payments system landscape and also permit non-bank entities to operate in the payment ecosystem. A cyber security directive has also been issued by the Bank to payment service providers. The directive provides a framework for payment service providers to implement cyber security measures to safeguard digital payments.

The rapid development in the payment ecosystem, such as Open Application Programming Interface (API) system, has created opportunities for Financial Technology Firms (FinTechs) to improve their products’ time to market, reduce development cost, enhance product flexibility and improve market competitiveness. FinTechs, have also received significant global policy support through adoption of the IMF/World Bank Bali Agenda on FinTechs provided them in October 2018.

Globally, financial institutions have adapted their systems and processes to safeguard payment systems from emerging threats. Some of the financial institutions have replaced their legacy systems, while others have collaborated with FinTechs and mobile money operators to offer innovative products and services. Regulatory reforms to create enabling payment environment have continued in many countries. Some countries have initiated policies such as regulatory sandbox to nurture FinTechs, while others have enacted new payment laws to engender competition and permit non-bank entities to play in the payment ecosystem.

Domestically, the retail payments interoperability project has been completed since 2018 and this has helped to enhance the overall efficiency of retail payments. Funds are now transferred seamlessly from one mobile money platform to another. Similarly, funds are now transferred from mobile money wallet to bank account and vice versa. In addition, the E-Zwich payment system has been integrated with mobile money wallets, while a prototype agent registry has been developed for the payment ecosystem which was piloted in 2018.

Migration of the payment card industry from magnetic stripe technology to Europay Mastercard Visa (EMV) chip and PIN technology was completed in the first quarter of 2018.

Payment System Oversight

 Risk Management

The Bank of Ghana has adopted a risk-based approach to its oversight responsibilities on account of rapid changes in the payment ecosystem from the evolution of digital technologies. Payment systems of systemic importance were subjected to assessment in line with the Principles for Financial Market Infrastructures (PFMI) of the Committee on Payments and Market Infrastructure and International Organization of Securities Commissions (CPMI-IOSCO). In the risk-based approach, the following risk categories were identified and assessed:

Liquidity Risk: Liquidity risk has been reduced from settlements of interbank obligations in central bank money and on gross basis in the Ghana Interbank Settlement (GIS). The interbank market for loanable funds and the option for repo transactions provides ready access to liquidity. The central bank as a settlement agent also provides implicit liquidity guarantee and incentivizes the interbank market to supply loanable funds to deficit banks.

Credit risk: Market participants adequately provide for liquidity needs either from own funds or through borrowings on the interbank market for timely settlement of obligations. Collateralised intra-day liquidity support from the central bank is the last resort of funding for interbank payment obligations.

Operational risk: Compliance with security standards including ISO: 27001 and PCI DSS, and implementation of fraud management system assists in containing operational risk.

Legal Risk: The Bank of Ghana Act 2002(Act 612), Payment System Act 2003(Act 662) and Guidelines for Electronic Money Issuers (2015) provided sound regulatory basis for the payment system. These regulatory frameworks, however, did not provide adequate scope and coverage for emerging digital payment landscape and have necessitated the passage of the Payment Systems and Services Bill by Parliament and also the introduction of Guidelines for Electronic Payment Channels in 2018.

Settlement Risk: Mandatory settlement of interbank payment obligations in central bank money and through the GIS guarantees settlement irrevocability and finality. Settlement risk is therefore mitigated under these arrangements.

Counter-parties risk: The payment system has no central counterparty. The Ghana Bankers Clearing House facilitates interbank payments in direct debit, credit and cheque clearing system by exchanging payment instructions, determining net settlement position of participants and transmitting settlement information to the settlement agent (Bank of Ghana) for payment.

Participation in Ghana Interbank Settlement Systems

Participation in the Ghana Interbank Settlement (GIS) Systems is mainly restricted to licensed clearing banks that are mandated to have settlement accounts with the Bank of Ghana to facilitate settlement of interbank payment obligations in central bank money. Systems that settled on the GIS are the CCC, ACH, E-Zwich, gh-link and securities transactions from the Central Security Depository (CSD).

Commercial banks participate in using Ghana Interbank Settlement Systems. Other participants are the ARB Apex Bank, which is the clearing bank for the rural and community banks and Social Security and National Insurance Trust (SSNIT).

Collaboration with Key Stakeholders

The BoG collaborates with the Financial Intelligence Centre on AML/CFT issues, National Identification Authority on the national identification card project as well as the National Communications Authority on mobile money operations.

ATM and POS Transaction Fees and Tariffs

The transaction fees paid by customers, who use ATM and POS terminals, vary from bank to bank and may be a flat rate or expressed as a percentage of the value of the transaction.

Mobile Money Services Fees and Tariffs

Mobile money services fees and tariffs are either flat or expressed as a percentage of the value of the transaction. The fee structure is designed to make mobile money services accessible to the unbanked.

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The next stage in Ghana’s digital payments evolution

Over the past decade or so, mobile money has given Ghana’s telecom companies a huge share of the market for payments, especially at the retail level. This was hitherto the exclusive preserve of the commercial banking industry, and even though the growth rate in mobile money transactions, by both value and volume, is finally beginning to slow from a peak of well over 100 percent annual growth, this payment platform is still the fastest growing in the country’s economy.

While the banks have publicly complained that their market share has been declining, eroded by the telcos in particular, they have, in actual fact been beneficiaries of the shift from cash to mobile money as an electronic payments platform embraced even at the  grassroots, since they remain the custodians of the deposits underpinning the emergent electronic wallets. Their positioning has been further strengthened by the implementation of the second phase of mobile money inter-operability – championed by the Bank of Ghana through its dedicated subsidiary for providing electronic payments platforms and infrastructure, Ghana Interbank Payments and Settlements Systems GhIPSS – which links customers electronic wallets to their bank accounts, which eliminates the need for people to load value on to their phones.

But the banks want to play a more active role in the emergent new payments framework and through collaborations with the new genre of financial technology firms – popularly known as fintechs – virtually all of them have been able to roll out mobile banking apps that include branded payment platforms. However, most of those platforms are designed as variations of a generic payments service architecture.

But every now and then a bank in Ghana comes up with a truly innovative payments product that stretches the envelope significantly further.

One such innovation is Ecobank Ghana’s scan and pay product which, by allowing for merchant retail payments to be confirmed by simply scanning a bar code, has eliminated the need for prohibitively expensive to acquire, point of sale machines, which up till now have been a major constraint to electronic merchant sales transactions at the retail level. Instructively, while Ecobank’s platform allows other banks to use it, several banks have instead chosen to replicate it and offer it as their own proprietary payment platform.

The latest such potentially revolutionary product is GCB Bank’s G-Money service which is about to be formally launched later this week. This new product, the first of its kind offered by any bank in Ghana, will allow individuals and businesses to use their mobile phones or Personal Digital Assistants devices to store money in the form of electronic money for transactions. Both customers and non-customers of the bank will be able to send and receive money both locally and internationally. Furthermore, customers will be able to save and borrow money using their G-Money accounts.

But even as individual banks fight for market share in the rapidly growing payments platforms market, GhIPSS itself is gearing up to become an active competitor in the industry rather than just a facilitator of strategically key national payment platforms. Here, the BoG’s dedicated subsidiary aims to leverage on its current position as a national institution rather than a competing player in the industry, to transform into potentially the most virile competitor of all.

This has the potential to level the playing field somewhat as it would be able to provide completely banking industry-wide, inter-operable versions of some of the branded digital payment platforms currently being offered by individual banks. For instance, a version of Ecobank’s scan and pay product, but usable by customers of every bank, is already under consideration.

To pacify the banks themselves, whose branded payments platforms would ultimately lose out to GhIPSS banking industry wide versions, its owner, BoG, plans to offer shares in the company to the banks, thus enabling them to share in the profits generated and indeed giving them a proprietary interest in the fortunes of the company.

Looking even further ahead to discern trends that will emerge in Ghana’s digital payments industry beyond the short term is probably an exercise in futility since they will be determined largely by the technological changes underpinning the industry’s growth. Since few, if anyone at all, could have foreseen, just a decade ago, the technological advancements that are currently driving the evolution of Ghana’s payments platforms industry, it would be fool-hardy to attempt predicting what will come a decade from now.