What you need to know about the formal remittance industry

Data from the United Nations Capital Development Fund (UNCDF) suggests that Ghana is the second-largest remittance recipient in Sub-Saharan Africa. In 2021 alone, remittances amounted to US $ 4.5 billion, representing 5.9 percent of the country’s GDP.

This is indicative of how remittances continue to boost Ghana’s socio-economic growth and serve as a source of external financing, with many Ghanaian families depending on them for expenses such as medical, education, rent, and general upkeep. Remittances are typically local or international transfers from an individual or family member to another individual or household.

Ghanaians receive remittances via formal and informal channels. The formal channels include banks, money transfer operators (MTOs), and digital platforms, while the informal ones come through friends and relatives traveling back to the country.

Remittances routed through a bank incur transaction costs, which are typically the sender's responsibility. In addition, they incur a currency conversion fee for providing local currency to the beneficiary. The cost of sending remittances to Ghana varies depending on the service provider and the transfer mode chosen.

However, it is imperative to note that in Ghana, the Bank of Ghana, which regulates the remittance industry, prohibits using debit cards to send remittances outside the country. Doing this, in fact, means you are engaged in what banks call 'cross-border funds transfers,' and these attract different charges.

Circumventing the remittance procedures to send money outside Ghana's borders is money laundering. Perpetrators could be liable for a minimum of 5,000 penalty units as per the provisions of the Anti-Money Laundering Act 2008 (Act 749) as amended, AML Regulations, 2011 (LI 1987).

A typical formal remittance transaction involves three steps:

• Step 1: The sender pays the remittance to the sending agent using cash, cheque, money order, credit card, debit card, or a debit instruction sent by e-mail, phone, or through the Internet.

• Step 2: The sending agency instructs its agent in the recipient’s country to deliver the payment to the recipient in the equivalent amount of the recipient’s local currency.

• Step 3: The recipient country agent pays the beneficiary.

The Government of Ghana, realizing the vital role remittances play in developing the local economy, has implemented several policies and regulations over the years to regulate remittance inflows.

Innovations in the financial sector and fintech activities keep expanding the remittance landscape in Ghana and across the world. This, coupled with the proliferation of smartphones, improved internet connectivity, and the availability of agent networks, has significantly contributed to making remittance transactions more accessible to many Ghanaians.

For the purposes of this article, I will focus on banking agents, as they have been the target of suspected fraudsters.

Per the Bank of Ghana’s Guidelines for Inward Remittance Services, banks are required to:

• Use the average interbank exchange rate published by the Ghana Association of Bankers on the day the transfer is received, or as prescribed by Bank of Ghana for the conversion of settlement funds into local currency;

• At the instruction of the Dedicated Electronic Money Issuers (DEMIs) and Enhanced Payment Service Providers (EPSPs), credit the local settlement account with the Ghana Cedi equivalent of inward remittances payable to beneficiaries within twenty-four (24) hours;

• Ensure that funds in the settlement accounts are used solely for payment to beneficiaries;

• Not honour any request other than for payment to beneficiaries and report any violation or suspected violation to the Bank of Ghana;

• Ensure that all Anti-Money Laundering/Combating the Financing of Terrorism requirements are satisfied for all settlement accounts regarding inflows and outflows.

These guidelines have become even more important in recent years due to the spate of remittance fraud in the country. According to the Bank of Ghana’s 2020 Banking Industry Fraud Report, remittance fraud recorded a 64.3% success rate compared to a 32.4% success rate in 2019 (see Figure 1 below).

Figure 1: Banking Fraud Success Rate

Source: Bank of Ghana 2020 Banking Industry Fraud Report. Available here

The issue is that over the past couple of years, some individuals have found a way of skirting the formal remittance procedure by sending remittances out of the country using debit cards on merchant payment platforms.

Intentionally or otherwise, these individuals move large sums of money, hoping to attract regular remittance transaction costs. These capital flight activities have become quite common, especially among young people across the country.

The Bank of Ghana and the Financial Forensic Unit of the Ghana Police Service have been investigating these activities and prosecuting them where necessary. However, the activity persists in various shapes and forms. While it is critical that money senders have in place a comprehensive anti-fraud program and agent monitoring program to periodically review, monitor, and test the effectiveness of these programs, the public must also be aware of the repercussions of these activities. After all, ignorance is no excuse under the law.

Finally, because the usage of payment cards is gaining traction among Ghanaians, when using a card on a third-party app, it important to note the following:

• Security protocols: Make sure the app has robust security protocols to protect your personal and financial information. Look for features such as two-factor authentication, encryption, and SSL/TLS encryption.

• Transaction fees: Check if there are any transaction fees associated with using your card on the app. Some apps may charge fees for transactions, while others may offer free transactions.

• Refund policies: Look up the app's refund policy to see if you can get your money back if you have any issues with a transaction or if you need to cancel a purchase.

• Privacy policy: Read the app's privacy policy to understand how your data will be used, collected, and shared. Make sure you are comfortable with the app's privacy policy before using it.

• Customer support: Check if the app offers customer support to help you with any issues you may encounter while using your card on the app.

• Reviews and ratings: Look up the app's reviews and ratings to see what other users are saying about their experiences with the app. This can give you an idea of the app's reliability and reputation.

• Compatibility: Make sure the app is compatible with your device and operating system before using it.

• Terms and conditions: Read the app's terms and conditions to understand the rules and guidelines for using the app, including any restrictions or limitations on using your card.