When the COVID-19 pandemic took hold early in 2020, a cloud was cast over the prospects of maintaining standards of living and the provision of basic but vital goods and services to the unbanked majority who would not be able to execute cash linked transactions.
It quickly became clear that mobile technology, and mobile money in particular. Would have an outsized role to play in keeping people connected, delivering vital financial support and providing safe, no-contact ways to pay for food, electricity and other life essentials. With more than $2 billion being transacted daily, mobile money became a part of a new daily routine for millions around the world.
What is Financial Inclusion?
Financial inclusion refers to the availability and equality of opportunities to access financial services. Optimal inclusion describes a state where individuals and businesses can access appropriate, affordable, and timely financial products and services across banking, loan, equity, and insurance and pensions products.
Financial inclusion efforts typically target those who are unbanked and underbanked and directs sustainable financial services to them beyond merely opening a bank account. Having more inclusive financial systems has been linked to stronger and more sustainable economic growth and development and thus achieving financial inclusion has become a priority for many countries across the globe.
Who is responsible for driving financial inclusion in Ghana?
In Ghana, promoting financial inclusion is considered the responsibility of our central bank, government agencies, state-owned and private financial institutions. However, Telcos have taken the lead role in promoting financial inclusion, capturing a portion of the mass market with banks and FinTech’s toeing the same line.
Regulatory authorities across board have risen to the challenge, providing some guidance on product design to protect the interests of the unbanked, encouraging providers to extend their operations to as many corners of the countries in which they operate as possible, rather than targeting economically viable towns and cities only.
What is happening in the market?
According to the World Bank‘s Consultative Group to Assist the Poor (CGAP), only 58 percent of Ghana’s adult population had access to formal financial services in 2015. The National Financial Inclusion and
Development Strategy was built to provide a roadmap to guide reforms and innovation in the financial ecosystem to address financial exclusion and support broader development of the sector. In 2021, the number has remained relatively leveled at 57.7 percent, a significant gain on the continental average at 43percent. In light of the social effect of the banking sector reform in 2018, which impacted confidence in the banking system, this may be indicative of the sector’s resilience.
In Ghana, a majority of market activities to promote financial inclusion are driven by market players creating products and services on the back of Mobile Money services that Telcos provide. The Bank of Ghana recently announced that mobile money accounts have increased exponentially to about 34times to 44million as of June 2021. The volume of mobile money interoperability transactions has also increased by about 24 times since its launch in 2018 to 10.3million as of June 2021.
Financial Inclusion: Cards vs. Mobile
At the end of 2020 a total of 77 million transactions were processed across all digital platforms leveraging the GhIPSS Instant pay technology, compared to the 38million transactions processed in 2019, representing a 103 percent increase. The value of transactions processed in 2020 was GHS 254 billion, a 16% increase compared to the GHC 219 billion processed in 201.
The real-time payments portfolio, which is made up of GhIPSS Instant Pay, Mobile Money Interoperability (MMI), Proxy Pay, GhQR etc also recorded significant growth, closing the year with the strongest performance. The major contributor to this performance was MMI; processing a total of 43.9 million transactions, representing a 367percent increase from 9 million transactions processed in 2019.
The MMI performance was driven mainly by three use cases being: Transfers between wallets across Mobile Money Operators (MMOs); Transfers from mobile wallets to bank accounts. Transfers across the GhIPSS Instant Pay (GIP) platform grew significantly in both transfers from bank accounts to mobile wallets and account transfers across banks. At the end of 2020, GIP transactions increased by 257 percent from 1.9million in 2019 to 6.8 million.
Impact of Financial Inclusion
The sum impact of these technologies has improved access to simple and affordable financial services to the underserved, underrepresented and unbanked populations. The onset of COVID-19 has spurred a revolution of minds and social behaviour amongst the mass market and underbanked. Lockdown measures resulted in hike in fintech adoption- people have moved toward cashless options and businesses are discovering the benefits of cashless and remote payments in staying afloat in these challenging times.
Mobile money transfers are reported to have grown exponentially in the heat of the COVID-19 restrictions on movement, invariably impacting economic activity. The face of both inward and outward remittances and payments which were previously wholly restricted to cash transactions and card payments that required physical presence has changed to allow cashless and remote participation for all even with the most basic mobile device, propelling financial inclusion amidst social distancing.
The Role of Banks, Telcos and Fintechs
Access to financial services and products is one of the most important drivers of economic development. At a time of tepid economic prospects where financial institutions are searching for new market opportunities, the benefits of bringing the unbanked and underbanked into Ghana’s financial system are more important than ever.
There is a need for banks to invest time and effort in building trust beween banks and communities and to develop innovative banking products to serve the demographics that typically would not be prospected. A good example would be to deploy banking agents or agencies in areas to replace branches as a touch point. Here, there is a real potential for relationships to be strengthened with this strategy.
Individual telcos with access to millions of customers (retail consumers, SMEs, large corporations) are uniquely placed to bring about massive shifts in ‘financial inclusion’. Telcos are enabling commercial transactions, eroding the constraints of geography, time, the size of transaction building propositions specially to support lifestyles and businesses.
One of the lowest-hanging fruits in favour of deepening financial inclusion would be to reduce transaction fees making the services more affordable for users. Vodafone leads the pack in the removal of transaction fees not only for Vodafone to Vodafone cash wallets but also across all mobile networks providing mobile money services.
In Ghana, fintechs have led the way in providing simplified financial services (savings, insurance, pensions, loans etc) to mass market participants via digital channels. For further enhancement of their contribution to financial inclusion, fintechs should invest a bit more into driving financial literacy by deploying financial education modules with gamification tied to rewards in an effort to reinforce learning habits with a focus on financial literacy and encouraging positive social behaviour.
This article was originally published in The GH Bankers’ Voice, a publication of the GAB