A policy brief by the Africa Centre for Entrepreneurship and Youth Empowerment (ACEYE)
Ghana’s startup entrepreneurship ecosystem is dotted with a few dozen organisations looking to use technology as a lever to augment traditional financial services, contribute to building a better national financial system, and expand financial inclusion among other things.
Ghanaians can make mobile payments and money transfers, access loans and raise funds, as well as manage financial assets from mobile devices without entering a banking hall. In this paper, the Africa Centre for Entrepreneurship and Youth Empowerment (ACEYE) explores innovations spearheaded by Financial Technology (FinTech) companies within the broader framework of the entrepreneurship ecosystem, and offers a path to growth for players in the FinTech space.
The FinTech Ecosystem
Payment solution companies such as mobile money services operated by telcos, smartphone applications such as zeepay and expresspay, crowdfunding apps like GoFundMe and Kickstarter, Insuretech, distributed ledger technologies such as blockchain and cryptocurrencies are key components of the FinTech ecosystem.
In Ghana, the telcos have rather leapfrogged and are now leading the pack in terms of payment solution FinTechs. Through collaboration with commercial banks, banking services are more decentralised and scaled-up to cover a much wider demographic which formerly were limited by the unavailability of brick and mortar bank branches in their communities.
The FinTech ecosystem in the country is particularly unique. A typical payment solutions company needs the cooperation of telcos which currently provide mobile money services, commercial banks, the Bank of Ghana and Ghana Interbank Payment and Settlement Systems Limited (GhIPSS), which owns the platform that enables mobile money operability and automated clearing.
The relationship among these partners is delicately balanced to ensure a mutually beneficial working relationship. ACEYE has observed that telcos have been covertly trying to limit the flexibility and convenience of using other payment apps such as expresspay, zeepay and the like. While it was initially simple to move money across these smartphone-powered applications and mobile money wallets, telcos have revised the procedure – and in some cases the number of steps required to validate and complete a transaction across these platforms thus, making the users less satisfied compared to completing transactions directly through mobile money wallets.
The insurance industry in Ghana is also gradually integrating technology into its core business within the broader meaning of insuretech. Vehicle insurance is now done online and made readily verifiable by anyone with access to a mobile phone or Internet. The National Insurance Commission (NIC) hopes to curb the menace of vehicles with fake motor insurance stickers plying the roads – thus endangering lives and property, through the launch and use of the motor insurance database.
Significant strides have been made in the FinTech subsector. The payments department of the Bank of Ghana has been proactive in providing the needed oversight on issues ranging from minimum capital requirements to regulations on how FinTech can help fight money laundering and terrorism financing; GhIPSS’ efforts to promote seamless cross-platform transactions through a unified payments interface is commendable; and the innovations spearheaded by telcos and standalone payment gateway providers have all contributed to enrich the ecosystem.
FinTech and Financial Inclusion
FinTech is playing an important role when it comes to penetration of financial services products across the country. Fuelled by the growing number of smartphone users, increasing penetration of the Internet across the country, increased integration of technology-powered products with traditional banking and finance services, and government’s digitisation drive, FinTech companies are using advanced tools and technologies aimed at optimising processes – not just internally, but also to provide the end-users with a superior experience by ensuring greater convenience, engagement and enhanced security.
Drivers of FinTech growth
More and more Ghanaians are becoming tech-savvy. An annual report released by global digital agencies, We Are Social and Hootsuite, has revealed that as of 2018, 10 million Ghanaians were using the Internet. The figure represents 35% of the total 29,150,000 population of the country, and is an increase of two million on the figure recorded in January 2017.
The rise of Ghanaian Internet users was replicated across the continent, with Africa recording the fastest growth rates in Internet penetration – the number of Internet users across the continent increasing by more than 20% compared to 2017. Much of Ghana’s growth in Internet users was attributed to more affordable smartphones and mobile data plans. These developments have empowered Ghanaians to experiment with a variety of Internet-powered tools and products which were inaccessible to them a few years ago. FinTech has benefitted a lot from increased access to the Internet and telecommunication facilities.
Another key driver of FinTech innovation in Ghana is the general level of education in the Ghanaian populace. More people can read, or at least make sense of simple numbers, due to an increase in Generation Z and the millennial population. Access to formal and adult education programmes have all supplemented the efforts of government to establish a good proportion of literate citizenry. While key infrastructure deficits remain in the technology and telecommunications space, progress is certainly remarkable and is fuelling the FinTech revolution. Commercial and investment banks in Ghana are embarking on massive innovation drives with mobile applications which allow users to enjoy Internet banking services.
This is the key force behind current growth of FinTech in the country. Bolstered by the efforts of GhIPSS, demand by consumers, the use of point of sales devices in shopping malls and supermarkets, FinTech is roaring and will hopefully supplant traditional forms of investment and banking in the not-too-distant future.
Challenges to FinTech growth
When compared to the rest of the world, FinTech in Ghana is in a nascent stage. Challenges are therefore a core component of the growth process. At present, Internet data cost is a significant limiting factor for most Ghanaians. The average Ghanaian toggles their mobile data on and off several times in a day.
Others simply do not have the money to stay online. Recent scams and fraudulent activities on mobile money platforms have not helped either. A rather troubling case is the exorbitant charges that telecom companies levy mobile money users. We are convinced that like any other technology product, the more people use them, the better their utility; and therefore anything that limits access to these FinTech products is an unwelcome obstacle.
The path to FinTech growth in Ghana
Corporations flourish where there is an adequate regulatory and legal framework, not too restrictive and definitely not too lax so as to allow abuse and exploitation by greedy corporate executives. The Payment Systems and Services Act, 2019 (Act 987) which allows for the entry of non-banks – as well as enabling direct licencing of FinTechs by the Bank of Ghana – is a good first step but not enough.
Growing the nascent FinTech industry as a distinct part of the financial services sector requires a supportive ecosystem and environment. Based on what we have observed in the industry, and in light of recent developments, we propose a few things which need to be done to further move government’ digitisation agenda forward, provide a better environment for FinTech entrepreneurs with a supportive environment, and encourage Ghanaians to increase adoption of these new technologies in the financial services sector.
There is need for a different, specific tax regime for FinTech companies. The current system of tax laws combines FinTechs with other service sector organisations for tax purposes. FinTech companies do not enjoy any special status, and thus do not have any specific benefits under the tax laws – albeit government talks a lot of digitising the payment systems sector and growing a cashless economy.
This is downright defective and an indication of poor policy implementation, at best. Companies in the country’s free zone enclaves enjoy special tax beneits; private educational institutions and other organisations have sector-wise tax benefits because of the special services or goods they produce. Granting FinTech companies tax holidays and other incentives would mark a good starting point to encourage start-up entrepreneurs to contribute in government’s digitisation drive. The importance of differentiated treatment in taxation – in order to further strengthen business models and value proposition for customers – cannot be overemphasised.
Unfair competitive practices must be banned. The telecom giants appear to be frustrating users of smartphone-based payment service providers piggybacking their platforms. Ghana needs a Commission to monitor and discourage unfair competition practices. Corporations which have established themselves as leaders in their respective industries have abused that position and bullied smaller, less-resourced ones for far too long.
COVID-19 presents a window of opportunity, let us not waste it. In the wake of cascading effects of the Covid-19 pandemic on all aspects of the economy – and possible contamination of currency notes, digital payment options should be aggressively promoted by government and non-government actors as an alternative to cash.
The Indian government capitalised on its demonetisation exercise in 2017 to make a strong case for the country to ramp up its use of digital payment options. The determination of the GhIPPSS should not be discouraged.
The recent launch of a universal code for cashless payments is a very laudable first step among the series of interventions implemented recently. An aggressive and coordinated marketing campaign in collaboration with traditional financial institutions should be intensified to increase the rate of adoption. The strategy was quite successful and is worthy of emulation. The benefits will certainly outlast the current heath and economic crisis.
FinTech companies have been at the forefront of promoting wallet-based savings, insurance, and investment products. Banks in partnership with mobile money operators and financial technology firms have been leveraging data-mining and analytic tools to extract valuable insights from mobile money customers’ data to provide credit scoring for short-term loans.
We have seen that most wallet-based transactions in Ghana are focused on cash-in and cash-out, person-to-person (P2P) payments, and airtime top-ups (GSMA, 2018). For the industry to achieve its next milestone, FinTech firms need to scale-up operations and partner with new actors to drive up digital transactions up and wider – otherwise, our research suggests that the unit profit of payment solutions providers from these services will not justify underlying investments and operating costs.
Globally, the industry is seeing a wave of convergence and fusion among financial service (FS) providers and Technology, Media and Telecommunication (TMT) companies. Where fusion is not happening, we see coopetition (cooperating to compete), which is the collaboration that occurs when the interests of FS and TMT businesses diverge. At the top of the market, we have even seen some regulators seeking to match up the big TMT firms with the big banks and get them to work together. There is lots of opportunity for growth in the country, and the right time to rev-up the growth engine is now.
This policy brief is on the back of a month-long research by the Africa Centre for Entrepreneurship and Youth Empowerment (ACEYE), which explores innovations spearheaded by Financial Technology (FinTech) companies within the broader framework of the entrepreneurship ecosystem and offers a path to growth for players in the FinTech space amid COVID-19 and beyond. Africa Centre for Entrepreneurship and Youth Empowerment is an entrepreneurial and policy think-tank applying free-markets solutions to promote entrepreneurship.