Branchless banking in Ghana: the way, the truth, and the future

Written by Yaw Fobi Asiedu-Danquah BA (Hons), LL.B (Cum Laude), LL.M (Banking Law), BL Candidate

Inspired by @Francis Jagri

Appreciation to @Bobby Banson Esq. for his advice and guidance.

PART 1 OF THE BRANCHLESS BANKING SERIES

1.0??????INTRODUCTION[1]

Technology has revolutionized the way people bank. Access to bank accounts and means of payment has become simple and convenient. Customers of banks need not physically visit their branches for purposes of transacting business. Almost all transactions can be done remotely. This feat is attributable to the advent of digital platforms through smartphones, personal computers, and other mobile devices.

In the mind of Bill Gates, “banking is necessary, but banks are not”.[2] Similarly, Triyono Gani is convinced that "the future of banking is not for banks".[3] The validity of these statements should be considered as prophecies, and as in the case of all prophecies, their cogency can only be tested prospectively. Nonetheless, it is reasonable for banks to be threatened by these averments. In fact, it is somewhat trite that financial technology (“FINTECH”) companies are giving financial institutions a hard time, forcing them to adopt Application Programming Interfaces (APIs) technologies and digital financial services.

The author admits that the topic constitutes a misnomer to an extent. This write-up does not only assess banks in the strict sense. The discourse addresses other related financial services and products, including those provided by Mobile Network Operators (“MNOs”). Thus, the term “banks” or “banking” in this paper is construed broadly.

The nature of the topic makes it prudent to first, discuss the position of banks separately from that of MNOs and FINTECHs. After that consideration, the marriage between them shall be assessed. The position of regulators will also be studied. Prior to these considerations, the Ghanaian legal and regulatory framework in relation to financial technologies beckons close scrutiny.

2.0??????LEGAL AND REGULATORY FRAMEWORK

2.1??????General

The key legislation for purposes of this discussion is the Payment Systems and Services Act, 2019 (Act 987). Other relevant applicable laws include, but are not limited to, the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) (“Banks Act”), Anti-Money Laundering Act, 2020 (Act 1044), Data Protection Act, 2012 (Act 843), Electronic Transactions Act, 2008 (Act 772), Companies Act, 2019 (Act 992) as well as Bank of Ghana (BoG)’s notices, directives, circulars, and regulations.

To upsurge branchless banking, the Ghanaian government and the BoG have made significant legal interventions. In 2008, the BoG issued a branchless banking regulation to permit banks to make use of digital technologies to enhance financial inclusion.[4] The BoG in 2015 issued another guideline [5] governing the use of agents by e-money issuers, deposit insurance, and consumer protection.[6] This opened up the marketplace for non-bank e-money issuers, increasing mobile money accounts from 3 million before the guideline to 7 million in June 2016.[7] Unlike the 2008 branchless banking guideline, this guideline did not apply to only financial institutions. Among other things, it provided for the extension of financial services beyond a traditional branch-based regime to everyday transactions and ensured that electronic money was reserved for financial institutions regulated under the then Banking Act[8] or by licensed non-bank entities engaged solely in the e-money business and activities related or incidental to such businesses and supervised by the BoG.[9] To further reinforce Ghana’s payment system with regards to FINTECHs, the Payment Systems and Services Act [10] was enacted.[11]

2.2??????The Payment Systems and Services Act, 2019 (Act 987)[12]

The Payment Systems and Services Act was particularly enacted to digitize Ghana’s economy in light of the BOG’s “2024 Cash-lite Agenda”.[13] The purpose is three-fold. It seeks to foster efficient payments, improve financial inclusion, and enhance financial innovations. The Payment Systems and Services Act applies to banks and specialized deposit-taking institutions, payment service providers, dedicated electronic money issuers, and their affiliates and/or agents.[14] The BoG has overall supervisory and regulatory authority in all matters relating to payment, clearing, and settlements.[15]

Where a corporate body other than one regulated under the Banks Act seeks to operate as a payment service provider,[16] such a body corporate ought to be licensed to provide payment services by the BoG.[17] A body corporate regulated under the Banks Act which seeks to engage in the payment service business only requires authorization from the BoG.[18] Upon successful application for a license or authorization to operate as a payment service provider, the body corporate may subsequently operate as an electronic money issuer,[19] albeit with further authorization and licensing.[20]

Again, a body corporate may acquire a license to operate as a dedicated electronic money issuer for purposes of engaging in the electronic money business,[21] however where that body corporate is not regulated under the Banks Act it must apply to the BoG in a prescribed form.[22] A dedicated electronic money issuer must, among other things, be an incorporated limited liability company in Ghana, and provide in its constitution that electronic money owed to customers are held in trust and shall not be encumbered in case of insolvency or liquidation, engage in only the business of electronic money and other activities related or incidental to such businesses and establish a separate entity incorporated exclusively for purposes of operating a dedicated electronic money business if that person is engaged in activities not related or incidental to electronic money.[23] Hence, entities that may engage in electronic money business in Ghana are body corporates regulated under the Banks Act which have been duly authorized under the Payment Systems and Services Act, or payment service providers or dedicated electronic money issuers duly licensed under the Payment Systems and Services Act.[24] The entities are permitted to serve their customers through agents.[25] This provision makes it possible for the various mobile money agents across the country to operate.[26]

All payment service providers are required to maintain in the country a minimum paid-up capital as determined by the BoG.[27] Dedicated electronic money issuers are required to keep one hundred per cent of the electronic money float in liquid assets.[28] The liquid assets shall remain unencumbered and may take the form of cash balances held with a bank in the country and withdrawable on demand or any other liquid asset determined by the BoG.[29] Where the body corporate engaged in activities other than the operations of the dedicated electronic money issuer, a separate account shall be held for that purpose.[30]

3.0??????BANKS

For purposes of clarity, the author adopts the term “branch-less” banking as strictly distinct from “branchless” banking. The former is the more likely circumstance in Ghana. Simply, it connotes a situation where banks reduce the opening of new bank branches. The latter is an emerging phenomenon. This is known as direct banking or branchless banking. These institutions are fully functioning banks without local branches.[31] Both situations are the consequence of digital platforms.

The wave of technological advancement and its application in banking has caused two main changes in terms of;

1. Accessing banking products and services and

2. The meaning of “banking business”.

With regards to the first point, today, customers of banks are able to access their accounts remotely. The transition can be traced back to the 1970s when the Automated Teller Machines (ATMs) were developed.[32] In the 1990s ATM cards were largely replaced by debit cards which enhanced transactions by facilitating payments from bank accounts at the point of sale.[33] Currently, internet banking and APIs are leading the way within the banking industry with more collaboration between banks and third parties. This allows banks to offer seamless services to clients. It is not the case that the traditional banking way is obsolete. In fact, online platforms pose unique challenges.[34] The traditional banking approach retains the trust, confidence, and loyalty of some customers. The sensitive human touch is firmly settled. Nonetheless, the convenience and efficiency of online banking cannot be overemphasized. Perhaps, it is safe to assert that online banking has become the norm.

Suffices to state that the rapid expansion is a direct result of the application of innovations of the Fourth Industrial Revolution (4IR) to wit, the internet of things (IoT), blockchain technology, and artificial intelligence (AI) in the banking industry. The applications of these technologies in banking, for instance, the use of chatbots, have replaced the high volume, repetitive tasks previously performed by humans.

The prospect of banking is beyond imagination. However, beyond this “imagination”, there are some foreseeable expectations. Amongst these are an increase in partnerships between banks and FINTECH firms, the emergence of new challenger banks, an increase in branchless banking and fewer person-to-person banking services, and the expansion of digital payments.[35]

The second change as stated above relates to the “banking business”. At common law, a bank is defined as an institution that carries on “banking business”.[36] Traditionally, the banking business includes receiving money and cheques on deposits, paying cheques drawn on banks, and maintaining a current account or something of that nature. The banking business is yet subject to change. In Ghana, a bank is simply a body corporate that engages in the deposit-taking business and is issued with a banking license in accordance with Act 930.[37] “ “Deposit-taking business” means the business of (a) taking money on deposit and making loans or other advances of money; and (b) financial activities prescribed by the Bank of Ghana for purposes of this definition”.[38]

The Ghanaian statutory position is not sacrosanct thus the common law authorities remain useful. As a matter of fact, the simple assessment of determining whether or not an institution is a bank has been somewhat problematic in this country. The dilemma could be accredited to the nature of activities financial institutions engage in today. For instance, the emergence of financial conglomerates, the convergence of financial products where financial institutions offer products beyond their traditional boundaries, regulatory overlaps, the complexity of financial products, and the increase in regulatory arbitrage have exposed the weaknesses in the regulatory system.[39]

Another consequence of digital platforms is the rise of platform banking. Platform banking has been described as

“a digital marketplace, owned and operated by a bank or another (potentially nonbank) entity that provides banking and possibly nonbanking services. It is not the same as open banking; however, the latter enables and amplifies the former”.[40]

The essence of platformification is “a single platform that solves a specific problem for a customer by integrating services from banks, fintech (financial technology) companies, and “non-banks” ”.[41] Although this is currently not popular in Ghana the setup is likely to reach our banking shores shortly.?

4.0??????MNOs AND FINTECHs

Mobile money operators have gained significant ground in the Ghanaian economy. Telecommunication companies (Telecos) in Africa, particularly Ghana, provide competitive financial services to all persons regardless of their position on the socio-economic ladder. In point of fact, the growth in Ghana’s financial sector since 2010 has been heavily linked to mobile money.[42] It is noteworthy that although banks dominate Ghana’s financial sector, they only contribute 2 of the 17 percentage points increase between 2010 and 2015, with mobile money alone accounting for a 7 percentage points increase.[43] Ghana’s regulatory system has also catalyzed the surge of FINTECHs. On 30 April 2020, the BoG announced the issuance of its first license to a financial technology company (“fintech”), a local company called Zeepay Ghana Limited (“Zeepay”) “in furtherance of efforts to deepen financial inclusion and in accordance with the Payment Systems and Services Act, 2019 (Act 987)”.[44] These activities are relevant in this paper because their operations fall under the supervision of the BoG.[45]

5.0??????THE RELATIONSHIP BETWEEN BANKS, MNOs AND FINTECHs

First of all, the activities of FINTECHs in Ghana are heavily dependent on the operations of banks and MNOs. Secondly, FINTECHs and MNOs in Ghana may not survive without the existence of banks.[46]

Beyond the modus operandi of these setups, operability has made collaboration and transfer between different financial service providers practicable. In May 2018, the Ghanaian government instituted the Ghana Interbank Payment Settlement System (GhIPSS) which is among the first “interoperable mobile money switch [es] in Africa”.[47] Thus, a client of say, Vodafone, can simply send cash to an MTN user or even to his or her bank account. Indeed, customers of MNOs can withdraw cash via ATMs. This makes access to financial services expedient, efficient and affordable.

6.0??????REGULATORS

As can be observed, the growth is not peculiar to the banking industry. The roots of this formidable tree extend into the territory of insurance, securities, pensions, and so on. While the systems to tackle these innovations are expected to be regulatory-specific, the core approach is likely to be similar. The focus of this paper as has been stated previously is banking and other closely related services.

BOG has made tremendous headway in terms of regulating MNOs and FINTECHs. The reality, however, is that the growth of technology is so rapid that as expected, the law keeps playing catch up. Cryptocurrencies are currently unregulated in Ghana. In terms of crowdfunding, Reward and Donation crowdfunding fall within the regulatory regime of Act 930 and Act 987.[48] Equity and Debt crowdfunding/Peer-to-Peer lending do not fall within the regulatory regime of the BoG. The Security and Exchange Commission is yet to put in place a regulatory mechanism for Equity crowdfunding. The application of AI in financial services and products is likely to raise novel legal issues. These issues shall be addressed in a subsequent publication.

7.0??????CONCLUSION

Banking, especially in the COVID and post-COVID era has become more digital. Customers of banks are able to access their bank accounts through mobile devices and smartphones. Additionally, non-bank financial institutions provide financial services and products that compete against and augment those provided by the banks. Digital financial platforms have proven to be a lucrative venture, attracting a wide range of investors into the market. The prospects of banking in the 4IR are exciting. It is expected that financial institutions will collaborate with FINTECHs to provide services novel to the traditional banking services. The application of AI, blockchain and IoT in the financial services industry will expand. Thus, it is essential for regulators to be abreast with these developments. Branchless banking does not render traditional banking services nugatory. They complement each other, at least, for the time being. The role of banks in the financial service industry in the next decade or more necessitates a detailed reflection.

?

Next: THE LEGAL ASPECTS OF CRYPTOCURRENCIES IN GHANA.

[1] See publication by the author, Yaw Fobi Asiedu-Danquah ‘Financial inclusion and the Fourth Industrial Revolution in Ghana: challenges and prospects from a legal perspective’ (2020) (Master’s Dissertation) University of Johannesburg <https://ujcontent.uj.ac.za/vital/access/services/Download/uj:42857/SOURCE1?view=true > (Accessed: 17th July 2021).

[2] Piciu Gabriela Cornelia and Chitiga Georgina ‘The role of information technology on the banking industry’ (2011) Economic Sciences Series 2.

[3] Triyono Gani ‘the future of banking is not for banks’ <https://www.thejakartapost.com/academia/2020/10/19/the-future-of-banking-is-not-for-banks.html > (The Jakarta Post, 19th October 2020) accessed 17th July, 2021.

[4] Bank of Ghana – Notice No. BG/GOV/SEC/2008/21 - Regulatory Framework for Branchless Banking

[5] Bank of Ghana – Notice No BG/GOV/SEC/2015/09 - Guidelines for E-Money Issuers in Ghana and Agent Guidelines.

[6] Kwadwo Boateng ‘Ghana’s progress on reaching out to the unbanked through financial inclusion’ (2018) International Journal of Management Studies 2.

[7] The Consultative Group to Assist the Poor (CGAP) ‘Advancing Financial Inclusion to Improve the Lives of the Poor’ (2016) CGAP Annual Report 2016 1.

[8] 2004 (Act 673).

[9] Adwoa E. Paintsil ‘The digital agenda: legal reforms to accommodate FINTECH in Ghana (Part I)’ (2020) <https://robertsmithlawgroup.com/legal-advise/the-digital-agenda-legal-reforms-to-accommodate-fintech-in-ghana-part-ii/ > (Robert Smith Law Group, 22nd May 2020) accessed 17th July 2021.

[10] See 2019 (Act 987).

[11] Paintsil supra.

[12] The Bank of Ghana has established a Fintech and Innovation Office responsible for licensing and overseeing “dedicated electronic money issuers (mobile money operators), payment service providers, closed-loop payment products, payment support solutions and other emerging forms of payment delivered by non-bank entities”. See Bank of Ghana “Bank of Ghana establishes fintech and innovation office” 2020.

[13] Paintsil supra.

[14] Sec. 1 of Act 987.

[15] Sec. 3 (1) of Act 987

[16] Per sec. 102 “payment service provider” means a body corporate licensed or authorised under the Act to provide payment service. “Payment service” means the provision of service to facilitate the transfer of funds from payer to a payee using various forms of payment instrument or electronic money. “Payment instrument” is any medium in electronic or written form used for ordering transmission of payment of money

[17] Sec. 7 (1) of Act 987.

[18] s 10 (1) of Act 987

[19] Per sec. 102 of Act 987, “electronic money issuer” means a payment service provider that issues electronic money.

[20] Sec. 21 of Act 987.

[21] Sec. 23 of Act 987.

[22] Sec. 24 of Act 987.

[23] Sec.?23(a)(b)(d) and (e) of Act 987

[24] Sec. 21 of Act 987.

[25] See sec. 81 of Act 987.

[26] Adwoa E. Painstil ‘The digital agenda: legal reforms to accommodate fintech in Ghana (part II)’ (2020) < https://robertsmithlawgroup.com/legal-advise/the-digital-agenda-legal-reforms-to-accommodate-fintech-in-ghana-part-ii/?> (Robert Smith Law Group, 22nd May 2020) accessed 17th July 2021.

[27] Sec. 17(1) of Act 987

[28] Sec. 36 (1) of Act 987.

[29] Sec. 36 (2)(a) and (b) of Act 987

[30] Sec. 36 (3) of Act 987.

[31]Salvatore Orlando ‘The difference between traditional and online banking’ (2021) <https://www.expatica.com/be/finance/banking/the-differences-between-traditional-and-online-banking-1299954/ > (Expatica, 1st June 2021) accessed 22nd July 2021.

[32] W. Scott Frame and Lawrence J. ‘White Technological Change, Financial Innovation, and Diffusion in Banking' (2009) NYU Working Paper 10.

[33] Ibid at 1.

[34] See Asiedu-Danquah supra at 27 – 37.

[35] Jim Marous ‘2017 retail banking trends and predictions' (2016) Digital Banking Report 13.

[36] LS Sealy and RJA Hooley ‘Commerical Law: Text, Cases and Materials’ (2009) Oxford University Press 555 and Union Dominion Trust v Kirkwood [1966] 2 Q.B. 431.

[37] Sec. 156 of Act 930.

[38] Sec. 156 of Act 930.

[39] Mensah ‘Financial regulation: has Ghana reached a turning point?’ 2019.

[40] Val Srinivas and Jan-Thomas Schoeps ‘Platform banking as a new business model’ (2019) <https://www2.deloitte.com/us/en/pages/financial-services/articles/platform-banking-as-a-new-business-model.html> (Deloitte 11th December 2019) accessed 22nd July, 2021.

[41] Nanda Kumar ‘Banking-as-a-platform: delivering a new era of customer experience and value’ (2021) <https://internationalbanker.com/banking/banking-as-a-platform-delivering-a-new-era-of-customer-experience-and-value/ > (International Banker, 19th March 2021) accessed 23rd July 2021.

[42] See World Bank Group ‘Enhancing Financial Inclusion: 4th Ghana Economic Update’ (2019) xi and Abass ‘the recent evolution of Ghana’s financial system: the MoMo effect’ (2019) International Journal of Commerce and Finance 140-146.

[43] Republic of Ghana ‘National Financial Inclusion and Development Strategy (NFIDS) 2018-2023’ (2018) xi.

[44] Bank of Ghana ‘Bank of Ghana Licenses First Fintech’ 2020.

[45] See above the discussion on the Payments Systems and Services Act.

[46] Ibid.

[47] World Bank Group supra at xii.

[48] The BoG NOTICE NO. BG/GOV/SEC/2020/15 dated 3rd December 2020 also applies.