Cashless Economy Promotes Banking Floats

Buying and selling of products and services by businesses and individuals through websites or electronic mediums, without using any paper documents are now an integral part of modern day global commerce.

Although this channel of marketing generally revolves around the use of the Internet, any transaction that is completed solely through electronic means can be considered e-commerce.

It is, therefore, not uncommon to find that e-commerce can be business to business (B2B), business to consumer (B2C), such as Amazon, and consumer to consumer (C2C), a perfect example being eBay and Tonaton.

In Ghana, the market is growing, particularly with online merchants. They include Tonaton, Zoobashop, Tisu, and Africa’s biggest e-commerce company, Africa Internet Group which owns more than 10 targeted e-commerce websites, including Jovago (for online hotels reservation), Jumia and Kaymu (consumer products), and Hellofood for food reservations and delivery.

Many of these online shops have not had a perfect logistical match to enable them to evolve quickly. They are hampered particularly by the absence of an electronic payments system.

As has mostly been the case in Ghana, businesses and developments move ahead of the basic infrastructure, systems and laws that are required to facilitate them. Once again, the e-commerce market is ahead of the systems and structures required to lift it.

According to the doyen of the Internet in Ghana, Professor Nii Narku Quaynor, e-commerce started showing prospects since the Internet was first introduced in Ghana in 1993.

“We used to have e-cash which was used on the Oxford Street (in Osu, Accra) but did not evolve. Others have come in various stand-alone forms,” he recounted to the Graphic Business in a recent interview.

The main challenge has been pervasive payment platforms (many different instruments and channels to satisfy all transacting units. The predominant solution to this has been by transferring cash to accounts to settle, or pay cash on delivery.

Addressing the payments challenge spurs growth in e-commerce, experts argue. “This is because logistics for e-commerce will evolve when there is a workable payments system in place,” Prof Quaynor said, explaining that “if you don’t have payment you can’t have logistics.”

Until recently when international pay cards such as Visa and MasterCard were popularised by some individual banks, e-commerce in the country had mainly run on cash on delivery. Again, quite recently when mobile money got in vogue, the online merchants quickly partnered with them as a convenient payments channel.

A few app developers have also found a way around settling payments by providing third party funds settlement platforms such as eTransact and mPower.

Currently, the mobile money business appears to be the most pervasive means of making online payments. MTN Mobile Money alone grew from a subscriber base of about 5,000 in 2009 to about 4.8 million at the end of July, 2015. This enabled them to carry on the average monthly transaction in excess of GH¢18.5 million. This will work out to over GH¢120 million a year for only one network.

The pervasiveness of mobile money comes in both physical presence and usage. There are over 19,500 agents of MTN mobile money alone as of July 2015, compared to 967 bank branches and 1,316 Automated Teller Machines (ATMs) nationwide.

Ensuring a cashless economy is very crucial to improving floats (cash) within the banking system. This will ensure that many more people, rather than the current 44 percent of adult Ghanaians (5.9 million individuals), which according to a 2010 financial inclusion survey are excluded from the financial system, are included in the banking system.

Financial inclusion: The FinScope 2010 survey indicated that only 56 percent of adult Ghanaians or 7.5 million individuals are financially included.

The report also indicated that out of the 41 per cent adult Ghanaians who are included in the formal financial system, (5.5 million individuals), 34 percent (4.5 million individuals) are in the banking system.

This low financial services coverage and savings culture come in spite of the eight per cent average growth rate recorded in the Ghanaian economy in the past 10 years.

The pervasive use of cards, conducting electronic transactions and generally ensuring a cashless society is crucial to curtailing inflation and achieving a pro-poor and inclusive growth in the economy.

Not too long ago, the Ghana Interbank Payment and Settlement System (GhIPSS) launched two new products that will help deepen the promotion of a cashless economy. The gh-link e-commerce is an upgrade of local cards issued by banks to make them compatible for online payments.

With the gh-link card, which already inter-operates with almost all ATM machines in the country, customers can use it to make payments online for merchandise purchased from e-commerce platforms.

The second product, GhIPSS Instant Pay (GIP), enables individuals and organisations to effect instant bank transfer of funds from an account to another, where the recipient can access the fund instantly. Until now, transferred funds could only be accessed within 24 hours and 48 hours.

This is, therefore, a great breakthrough in the quest to promote the use of electronic cash for transactions, removing the physical handling of cash which come with challenges. The challenges include the loss of money to robbery, high cost of printing new currency to replace worn-out notes and high incidence of armed robbery.

It is imperative to point out that the cashlessness of the rich societies account for the low level of armed robbery in those countries, as robbers in those countries direct their energies to finding their booties at bank vaults or bullions.

Prof. Quaynor, who introduced the Internet to Ghana, believes that the payments challenge would spur growth in other ancillary businesses.

“There will be companies that will see opportunities to do fast deliveries; the technical community will also become energised to develop solutions around the payments platform. Then there will be online merchants that will get onto the business,” he predicted.

“It’s an exciting period in that a catalytic change is about to occur. Once you remove the payments as a barrier, other things can follow,” he emphasised.

A number of online merchants are excited about developments in the mobile money space. Tisu is a Ghanaian online discount shop which sources from suppliers, wholesalers and retailers at discounts and post same online for merchandise.

Its Head of Business Development, Mr Albert Boateng, told the GRAPHIC BUSINESS that their main challenge had been paying for sales made online.

“Currently, we operate on cash on delivery basis. But we also have partnership with mPower through which we accept international cards such as MasterCard and Visa Cards. We also give customers the option to pay with Mobile Money. But with the introduction of gh-link, we have more options, he said.”

Again from Prof Quaynor’s viewpoint, the Internet and information technology guru, the initial challenge was the low penetration of online merchants alongside the initial introduction of mobile payments.

“If you have two problems preventing the emergence of a sector and one is removed, the chances are that it will organically affect the introduction of the other,” he observed.

Prof Quaynor said payment was a problem which had now been solved and that the expectation was the natural development of merchandise, technical expertise and logistics to join the network.

Ensuring a cashless economy is very crucial to improving floats (cash) within the banking system. A cashless system will ensure that many more people are included in the banking system – as opposed to the current 44 percent of adult Ghanaians (5.9 million individuals) which, according to a 2010 financial inclusion survey, are excluded from the financial system.

With the gh-link card, which already inter-operates with almost all ATM machines in the country, customers can use it to make payments online for merchandise purchased from e-commerce platforms.