One of the most productively disruptive elements in the domestic banking sector is carried by an increasing number of Ghanaian citizens. The smartphone, which was until recently the preserve of a relatively small segment of the population, is rapidly being taken up by the emerging middle class and, in turn, driving a mobile payment boom. For banks, this has provided new revenue channels and inflows from the telecoms companies (telcos) at the helm of the mobile payment expansion in the region. Nevertheless, the mobile revolution is likely to pose a challenge to Ghana’s traditional banking institutions going forward.
According to the GSMA, a trade body that represents the interests of mobile network operators worldwide, mobile subscriber penetration in sub-Saharan Africa stood at 44% at end-2017. While this is below the global average, its projected compound annual growth rate of 4.8% during 2017-22 is expected to be more than double that of the global industry.
The falling cost of smartphones is the principal reason for their rise in popularity. The average cost of a handset has fallen below $120 in most regional markets, with low-cost Chinese technology playing a significant role in reducing prices, according to the GSMA. Ghana has shown itself to be a relatively early adopter of the new technology. Its mobile internet penetration rate of 31% is significantly higher than the West African average of 21%, and on this metric the nation outperforms the regional economic giant Nigeria, which in 2017 posted a penetration rate of 23%. The government can take some credit for smartphones’ growing ubiquity: in 2014 it removed a 20% duty on imported handsets as part of efforts to bridge what it perceived as an emerging digital divide between rich and poor, thereby opening up the technology to a new demographic.
The rise of the smartphone holds significant implications for the region’s financial services sector. Across West Africa the topic of mobile money – how to utilise it, how to regulate it and how to defend against its disruptive effects – is high on the agenda at industry gatherings. Ghana’s first efforts to tap into the mobile trend came in 2008, with the publication of guidelines for branchless banking by the Bank of Ghana (BoG). Some aspects of the framework were problematic for banks, however, such as the provision that restricted e-money issuance and agent recruitment to consortia of at least three licensed lenders.
Observing the low uptake of mobile money accounts, the BoG responded in 2015 with new agent and e-money guidelines that permitted telcos to own and operate mobile money networks under the central bank’s supervision. The result of this intervention was rapid investment and capacity-building by Ghana’s mobile network operators, with MTN Ghana leading the way in recruiting agents and establishing the necessary infrastructure for high-volume mobile payments.
Since then, the nation has played a leading role in the region’s mobile payment boom, with the number of mobile money accounts in West Africa increasing by 20.9% in 2017 to reach 104.5m, according to the GSMA, and some $5.3bn in transactions recorded that year. This growth has been supported by a proliferation of mobile money agents, which now outnumber bank branches and ATMs in West Africa by 13 times. In Ghana, mobile technology’s role as a catalyst for financial services activity has been particularly notable. According to recently published data by the BoG, the volume of deposits and withdrawals by Ghanaians using their mobile devices for banking purposes rose by 78% to GHS882m ($190.6m) in 2017.
There has also been a considerable increase in the variety of financial activity being carried out through mobile money platforms. From an initial base of peerto-peer transfers, the mobile money landscape has evolved to include international remittances; more complex financial products, such as insurance; and dedicated payment platforms for products and services across a wide spectrum of sectors. As is the case in other global markets, telcos in Ghana have taken the lead in the drive to extend mobile money solutions to a growing number of consumers, and in recent years this has seen them encroach on traditional banking territory. For example, in 2017 MTN Ghana launched QwikLoan, a credit service providing loans of up to GHS1000 ($216) to qualifying customers.
Services such as QwikLoan do not represent a direct challenge to the standard business models of domestic lenders. The relatively small amount of credit extended to individual clients and the short tenors on offer – usually 30 days or less – place them in the low-margin, high-volume arena of microfinance, which most Ghanaian banks have not targeted. The mobile banking landscape is, however, rapidly evolving. MTN has stated that it would like to scale up its operation to offer small amounts of credit to over 1m customers in the informal sector, a development that – by bringing more of the historically large unbanked segment of the population into the financial system – is likely to prove beneficial to the banking industry in the long run. The challenge for banks is expected to come later, as the volume of mobile payments grows and the telcos start to leverage the strength that a large asset base confers on them.
According to BoG data, this scenario could happen sooner than anticipated. The amount of money transacted outside the banking system via mobile money platforms reached a record-breaking GHS2.3bn ($497m) in 2017, an increase of nearly 85% over 2016. Funds held in mobile money accounts reached GHS24m ($5.2m), distributed across more than 11m accounts – indicating that consumers are regularly signing up to multiple mobile platforms offered by telcos. MTN is the market leader in the mobile money segment. It accounted for more than 90% of deposits with a combined value of GHS2.1bn ($453.8m) as of October 2017. AirtelTigo claimed second place, controlling 3.6% of the total, while Vodafone took third place, with 2.5%.
The current legislative framework requires telcos to place their deposits with commercial banks, but the volume of funds attracted by mobile operators has exposed a vulnerability in the banking system. With billions of dollars in deposits, many market observers foresee MTN being the first of the domestic telcos to apply to the regulator for permission to establish itself as a digital bank, a move which could potentially be very disruptive to traditional lenders.
A number of telcos in more developed markets have already taken this path. For example, in 2016 French multinational Orange bought 65% of Groupama Banque and launched Orange Bank, the country’s first 100% mobile bank, the following year. The UK, too, saw several mobile-first banks emerge in 2015-16, including Monzo, Starling, Atom and Tandem, while the US’ growing number of digital lenders now include Ally, Chime, Finn and Simple. Emerging markets are also adopting the digital banking model with increasing enthusiasm. Some of the most prominent include India’s Digibank, established in 2016, and the UAE’s Mashreq Neo, launched in 2017. The offerings of these ventures vary considerably, but the onus is on innovation and flexibility for the consumer. Products include online savings accounts, personal finance management tools, real-time alerts, home loans, investments, fee-free international transactions, person-to-person payments, currency exchange, linked debit and credit cards, cash withdrawals at ATMs, and insurance and consumer benefits, such as cashback rewards on purchases.
If a similar trend gains traction in Ghana, the first in the traditional banking system to feel the disruptive effect would be those lenders that currently act as custodians for the deposits taken by telcos. According to the BoG, the largest share of mobile money deposits in Ghana rests with Fidelity Bank, which in 2017 held around GHS583m ($126m), followed by Ecobank and CAL Bank, with GHS470m ($101.6m) and GHS229m ($49.5m), respectively. While the rapid development of mobile banking into standalone digital offerings is a challenge to the entire sector, banks can maintain their competitiveness by expanding their own range of digital products and services, according to Frank B Adu Jr, managing director of CAL Bank. “The dominance of cash will diminish in Ghana, and this process is well under way. Mobile money is defining the transaction space at the moment, but banks now realise that every issue must have a digital solution, and the future is positive,” he told OBG.
The digital segment is one of the least predictable areas of the market. Navigating this space and defending revenue from disruptive technologies is likely to be a key challenge for Ghana’s banks in the coming years.
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