Sunday, October 28, 2007

The Electronic Payments System in Ghana

Electronic cards be them ATM, Debit or Credit cards are used worldwide for a variety of purposes and reasons but the most common use is for withdrawing cash and paying for goods and services. In Ghana, ATM Bank cards and debit cards are the most common form of electronic cards. This industry has undergone and is undergoing fantastic changes.

I will highlight these changes and what the future holds and then start a debate as to why we never use our cards for anything else apart form withdrawing cash.

Types of Electronic Cards in Ghana

Stored Value Cards

Stored value cards also called e-money have been available in Ghana for sometime and were the first type of electronic funds available. SikaCard® by SG-SSB (then know as SSB) and Mondex® by GCB are examples but they have never been popular and are not prevalent.

ATM / Debit Cards

I have chosen to group ATM and debit cards together as most Bank issued ATM cards in Ghana now double as a PIN based debit card. The development of the ATM system in Ghana started in 1980 when the Trust Bank introduced the first ATM. A disparate and unconnected network of ATMs sprung up as other banks installed their own ATMs until the creation of the Ghana National Net Settlement Service (GNNSS) by VISA® International (also called the Visa Horizon network). All ATM / Debit cards issued in Ghana currently are therefore VISA® branded with VISA Electron® being the most common brand (issued by 7 out of 23 banks). United bank for Africa(UBA) is accredited but does not currently issue cards.

It must however be noted that two banks, Intercontinental Bank and Ghana Commercial Bank are set to soon release MasterCard® branded ATM and debit cards.

This might increase competition and reduce the high transaction charges for use of these electronic cards which currently stand at ¢2,500 (GH¢0.250) at your banks ATM, and ¢7,500 (GH¢0.750) for transaction on other bank ATMs and also other EFTPOS terminals, an assumption.

It is also interesting to note some ATMs allow use of Value Added Services like ; fund transfer between accounts and purchase of prepaid mobile units.

Credit Cards

Ecobank Ghana Limited currently issues the only credit card called the Ecobank Gold Card which VISA® branded. I do not know the criteria for assessing credit worthiness as there is currently no credit bureau formally established in Ghana, although there are hints the Bank of Ghana (BoG) will grant licences soon.

The Current State

The BoG as the regulator of the financial sector in collaboration with the financial institutions, especially the banks are currently implementing or formulating policy on various issues which will improve the use of electronic cards for more financial transactions.

The most relevant to this discussion is the Ghana Interbank Payments and Settlement System (GIPSS). The GIPSS is an independent entity established in an agreement between the BoG and the Ghana Association of Bankers, to be responsible for the different components of Ghana’s payment and settlement system infrastructure and would include the following:

  1. National Switch (the Common Platform)
  2. Biometric Smart Card
  3. Cheque Clearing
  4. Codeline Cheque Truncation
  5. Real Time Gross Settlement System (RTGS), and
  6. Automated Clearing House (ACH)

This is an exciting proposition and the most important factors for the ordinary bank user and Ghanaian are the following;

  1. A national switch means you can use your ATM card in any ATM in Ghana to withdraw cash. It would no longer require your ATM be ‘branded’ as all banks would be connected to the platform either directly or through other member banks as the costs involved may be considerable for smaller banks.
  2. The Biometric Smart card directly moves to the newest and increasingly preferred choice of electronic systems which involve using unique biometric data as opposed to PIN and signatures. It also provides the advantage of NOT requiring numeracy and literacy skills a situation which would allow unbanked illiterate Ghanaians to become a part of the electronic and digital age.

The GIPSS is on schedule and a contract was awarded to Net1 U.E.P.S. Technologies, Inc, a Johannesburg based company on June 26, 2007 for the supply, development and implementation of the National Switch and Smart Card Payment System and is scheduled to be completed in 9 months. The intention of NET1 is to connect all 23 banks in Ghana by December 2007.

"Net1 provides its universal electronic payment system, or UEPS, as an alternative payment system for the unbanked and under-banked populations of developing economies. This system uses secure smart cards that operate in real-time but offline, unlike traditional payment systems offered by major banking institutions that require immediate access through a communications network to a centralized computer. This offline capability means that users of Net1's system can enter into transactions at any time with other card holders in even the most remote areas so long as a portable offline smart card reader is available. In addition to payments and purchases, Net1's system can be used for banking, health care management, international money transfers, voting and identification."

(Source: . Read FULL article)

The Future

The next few months are going to be an exciting period in the electronic payment industry in Ghana. Its is finally feasible to invest in adopting electronic payment infrastructure for companies that offer financial services and products such as pre-paid utilities, money transfers, loan and insurance management, savings accounts, and third party payments in anticipation of payment instrument that can be issued to all Ghanaians regardless of their financial status or dwelling location.

There is also a need for all local business to gear up to accept the new payment instrument and IT solution providers and suppliers of electronic products must plan and strategise how to effectively supply, train and maintain these systems for local business (Young entrepreneurs this could be your business model).

It had also been a puzzle to me why VISA International has been inactive in advertising the use of VISA® branded debit cards as a retail purchase instrument. I was therefore pleasantly surprised when sometime this month Standard Chartered Bank and SG-SSB in collaboration with VISA® International started a radio campaign promotion the use of VISA® branded cards.

The Debate

A VISA Electron® branded ATM / Debit card can be used at any VISA branded ATM, Retail Point-of-Sale (POS) or any Electronic Funds Transfer at Point of Sale (EFTPOS) Terminal displaying the VISA logo. For VISA Electron® cards discretion for use in online transactions lies with the Issuer of the card, that is the banks. Cedi account cards currently cannot be used online but there are arrangements for cards drawn on a foreign currency to do so at some banks.

Question: Why are we so reluctant and unwilling (If you have please post a comment of How and When) to use our VISA cards to buy goods and services?

I have been trying to come up with answers and I believe these are some reasons.

  • Limited acceptance points: Most of us procure goods and services from merchants who do not provide this facility and we therefore do not come into contact with the facility anyway.
  • High transaction costs: Assuming the ¢7,500 (GH¢0.75) for use at different bank branch ATMs apply to use on a POS device or terminal, then 2 transactions a day means ¢15,000 (GH¢1.50) which translates to ¢105,000 (GH¢10.50) a week! Minimum daily wage is around ¢19,000 (GH¢1.90) Ouch!
  • Limited of information and advertisement: There is not enough of an information and advertisement drive by the issuers of cards, retail merchants and the others who provide the facility about the services offered. I believe by making such information as ubiquitous as possible, interest and use will increase.
  • Limited service offerings: The number of services which can be paid for with an electronic card is limited to mostly shopping at convenient stores and buying food. Important as these industries are; what about utility payments, cash back options, purchasing prepaid units for all types of situations, mobile phones, internet access, et cetera which provide real value to us consumers. The service providers should innovate and excite us with ‘real’ services.
  • Lack of System Reliability and Customer Care: I have nicknamed this ‘The Nightmare Scenario’ as mot of us have experienced trying to access an electronic service and being told the ‘system is down’, not with a smile but with contempt by the service provider. Imagine trying to buy prepaid electricity units at 9pm at the last ATM en route home and to be told the system is down!

Notwithstanding all the above mentioned, why could I not make myself pay for stuff at GAME® with my Ecobank VISA Electron card when the VISA Logo is boldly displayed? I simply felt "some way"! I think the most significant barrier to all of us is psychological! What do you think?

I am proud to say the Bank of Ghana is my favorite National Institution as they are really doing their work as the independent Central bank excellently.