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The Beginning, middle and possibly end of banking as we know it? [Article]

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The mandate of Bank of Ghana is mainly overall supervisory and regulatory authority in all matters relating to banking and non-banking financial business with the purpose to achieve a sound, efficient banking system in the interest of depositors and other customers of these institutions and the economy as a whole.”

At the introduction of Mobile Money, the product was regulated under the branchless banking act which was created in 2008 as part of the broader strategy to create an enabling regulatory environment to promote branchless banking. Please Note the primary audience of that guideline was deposit-taking financial institutions (bank and non-bank)

Additionally, it was a way for the Bank of Ghana to promote financial inclusion without risking the safety and soundness of the banking system – protection of banks and banking as it exists which I noticed is essentially a favorite theme of the Bank of Ghana.

It was an 8-page document that seemed to be a makeshift attempt to include and regulate mobile money and to safe guard consumers.

Move the clock forward 7 years…

On July 6 2015, the Bank of Ghana issued the Electronic Money Issues (EMI) Guidelines designed specifically for mobile money and all types of electronic money. Alas we now have a proper guideline.  A step in the right direction but as per the objectives, however, as always the Bank of Ghana endeavors to ensure Banks are protected.

The legalese for electronic money issuers(EMI) regulatory framework sounds like this “Pursuant to the mandate of the Bank of Ghana under the Payment Systems Act, 2003 (Act 662) to promote and supervise electronic and other payments, funds transfer, clearing and settlement systems and in the exercise of its powers under section 51(A) (3) of the Banking Act, 2004 (Act 673) and section 4 (1) (d) and (e) of the Bank of Ghana Act, 2002 (Act 612), the Bank of Ghana hereby issues the following:”

In the last few weeks, a number of pronouncements have made mobile money sound like the wild west and a barely regulated sector.

I first noticed the story of a member of the Finance Committee of Parliament, Alexander Afenyo Markin, who questioned the electronic money transfer service saying it lacked legal backing and hinted of plans to file a petition summoning officials of the Bank of Ghana (BoG) to appear before parliament to answer.

“If BoG still wants mobile money to operate they should move quickly to regulate it and they should also have reliable data. It should not be just that people walks in and send money without their data being captured, there should be a source” Mr. Markin said.”

Then the Managing Director of CAL Bank, Mr. Frank Adu Junior has appealed to the Bank of Ghana to immediately design clear guidelines to regulate activities of telcos engaged in financial activities. According to him, a clear policy direction stating the extent to which telcos can roll out financial products will aid customers and properly enhance the drive for financial inclusion.

  1. In the first instance I am unsure of why the member of parliament should portray mobile money as deeply unregulated area considering the fact that it is now better regulated than it has being in years.
  2. On Mr Adu’s point (MD of CAL Bank) I see a discussion point; how extensive is the guideline? This is where I want to further investigate, not just to his point about loans and the difference between mobile money loans and bank loans and the mobile money operators.

Here are my thoughts …

Banking as we know it will not be recognizable in 10-20 years:

The Bank of Ghana’s insistence on protecting the banks as stated in its branchless banking as well as the EMI in my opinion is stubbornness and does takes into consideration the future of banking as forecast by global research.

The FinTech (Financial Technology) space is disrupting banking and plans to fundamentally change the sector.

Financial technology, also known as FinTech, is a line of business based on using software to provide financial services. Financial technology companies are generally startups founded with the purpose of disrupting incumbent financial systems and corporations that rely less on software.

In Deloite research on the banking sector it stated the disruption and change of banking is a matter of when rather than if.

Deloitte reimagined how banking would like in 10 years and above and came up with the scenarios in the image below.

The Bank of Ghana needs to recognize in 10-20 years they might be a regulator of technology companies rather than banks.

bank

According to the African Tech Startups Funding Report, Fintech firms accounted for $55 million (29.6%) of the total capital invested in new African companies.

Bank of Ghana is ignoring the real essence of the financial technology revolution which is essentially a disruption and replacement of the banking sector as it exists.

The Bank of Ghana guidelines does not take into consideration the concept of virtual banking which financial institution that offers deposit and withdrawal facilities, and other banking services, through automated teller machines or other devices like Mobile, without having a physical (brick and mortar) walk-in premises.

They are essentially banks without buildings, how do you regulate them, can you regulate the operations of a website hosted in Silicon Valley that offers mobile and online banking and card services and in Ghana?

The Largest criticism of virtual banks is that it offers none of the protection that real banks offer, and it isn’t required to maintain any of the security, customer service or dispute resolution services that banks provide. At the same time, virtual banks hold large amounts of their customers’ money, makes millions of financial transactions and even offers credit and debit cards.

What about online susu or peer to peer lending? If I were to set up a mobile app that enables people to loan each other money and collect an administrative fee, who protects the user and how am I regulated?

A typical example in Lendico is a multinational company, operating a peer-to-peer lending platform. The international online marketplace for business and consumer lending was founded in December 2013 by the incubator and venture capitalist, Rocket Internet. Oh by the way rocket is the parent company for hello foods and kaymu which is already in Ghana.

What happens to the banking sector when virtual banking services begin to offer much lower loan rates than the bank rates?

For those that are interested please find a summary of the EMI Guidelines (which regulates issues of electronic money) below:

Permissions and Administration

Under the present Guidelines, non-banks are allowed to establish, own and manage an electronic money business in the form of a separate entity to be supervised by the Bank of Ghana. Business models and partnership arrangements are not dictated.

No person shall issue e-money other than a financial institution regulated under Act 673 and authorised under these Guidelines or a Dedicated EMI licensed under these Guidelines.

An RFI who carries on the business of e-money issuance without authorisation from the Bank of Ghana commits an offence and shall be liable to a fine of not less than 2,500 penalty units payable to Bank of Ghana.

A Dedicated EMI shall establish a board of directors with a minimum of five (5) members, at least three (3) of whom shall be resident in Ghana. The board shall be responsible for strategic decisions, effective oversight, compliance and internal control functions

 Create a dedicated Company: A person engaged in activities not related or incidental to e-money but wishing to be authorized to conduct e-money services must do so through a separate entity duly incorporated exclusively for this purpose, which requires a licence under these Guidelines as a Dedicated EMI.

Limits and Authentication

For amounts in excess of GH¢500.00, a two factor authentication using a PIN code, biometric signature or similar as well as a physical token in the form of a card, SIM card or similar must be used to authenticate the account holder

 Permissible Transactions (1) E-money systems may be used for the following:

  1. a) Domestic payments;
  2. b) Domestic money transfers, including to and from bank accounts;
  3. c) Bulk transactions, including payments of salaries, benefits, pensions etc.;
  4. d) Cash-in and cash-out transactions;
  5. e) Over-the-counter transactions;
  6. f) Inward international remittances;
  7. g) Savings products in partnership with banks and other deposit-taking institutions;
  8. h) Credit products under-written by a duly licensed RFI; 8
  9. i) Insurance products under-written by a duly licensed insurer;
  10. j) Any other transactions the Bank of Ghana may prescribe.

Dormant Accounts (1) An e-money account that has registered no transaction for a consecutive period of 12 months shall be considered dormant.

  1. a) The relevant customer shall be notified no less than one month before the 12-month mark is reached that the account will be suspended unless there is some form of activity.

In the case of mobile money, all outstanding e-money balances may be dissociated from Phone number after 3 months of inactivity.

A Number that is linked to an e-money account shall not be reassigned to a new customer without the following actions on the part of the EMI:

If the e-money account shall be terminated;

All outstanding balances in the account upon termination shall be transferred, along with identifying information on the customer, into a separate account held by the EMI with a specific universal bank designated for this purpose for a period of no less than five years;

After 5 Years monies must be transferred to the Bank of Ghana

Systems and Audit: An e-money issuer shall put in place systems that have built-in control mechanisms for a complete audit trail. These control mechanisms include, but are not limited to:

 Protecting your Money

In the interest of protecting e-money holders from the risk of bank insolvency, the sum total of e-money accounts held with any one universal bank on behalf of a given e-money issuer cannot exceed 15% of the net worth of the universal bank.

Customers shall be notified of all transactions on their accounts via electronic notification or a physical receipt providing at least the following information: a) Transaction amount; b) Transaction type; c) Any fees charged; d) Unique transaction reference; e) Date and time of transaction; f) Identifying details of the recipient of an outbound transaction or of the sender of an inbound transaction.

By:  Ethel Cofie

Ethel Cofie is CEO and Founder of EDEL Technology Consulting (An IT Consulting and Digital Products Company in West Africa and Europe) . EDEL Technology was recently named IT Consulting Company of the Year by the Ghana IT and Telecom Awards.

She has been featured in BBC and CNN for work in technology.

She also sits on numerous boards of numerous companies in Ghana, Nigeria and South Africa and has ambitions to grow EDEL Technology Consulting to the whole of Africa.