Cash is king, but digital is heir

One of the policy responses of the Bank of Ghana to the Covid-19 outbreak was to cancel charges on mobile money transfers not exceeding GH¢100 and to raise transaction limits on the service.

With the handling of physical cash said to increase exposure to the virus, the central bank’s move was aimed at nudging people to prefer payment by mobile phone to cash.

The impact was instant: in March, the month the policy was announced, transactions via mobile money, in both volume and value terms, jumped to record levels. Although yet to be published, the numbers most certainly climbed in the lockdown month of April, too.

This is just one illustration of the pandemic’s impact on the way people transact financially. To be sure, the financial digitisation wave was well underway in Ghana before the virus struck.

While the rapid uptake of mobile money services is the biggest driver of digital payments, other forms of non-cash payments, including previously unpopular modes, are accelerating, too.

The inexorable march of banking towards digital and remote service delivery is a salient development of recent years. This Special Report argues that the coronavirus crisis and its long-lasting effects on consumers, firms and the government will give additional impetus to the digitisation trend.

This prognosis is predicated on at least three factors. First and foremost, the virus has underscored the value of digital technologies—not just for banking, but also for working and conferencing. Although Ghanaian banks had long been marketing digital transaction channels to consumers, the adoption rate undershot their ambitions.

The Ghana Living Standards Survey carried out in 2016/17 (GLSS 7) found that only 3.3 percent of households were using electronic banking products, such as mobile banking (via apps or USSD codes) and internet banking.

However, Covid-19 has amplified the need for these products, encouraging a surge in sign-ups and in transactions by existing users. For example, Cal Bank, one of the fastest-growing indigenous banks in the last decade, has seen a 25 percent rise in users of its mobile banking platform since the year began.

First National Bank, a subsidiary of South Africa’s FirstRand Group, recorded transaction growth through digital channels of higher than 90 percent in both March and April. As more people, courtesy of the pandemic, experience the benefits of digital finance, this behavioural change, like other adjustments to the times, is likely to outlast the virus itself.

The second factor prompting the prognosis is how adroitly banks are responding to the exigencies of the moment. Promotion of digital products has, unsurprisingly, taken front and centre of marketing activities, and banks are leveraging the pandemic to revamp their digital services and fast-track digital projects that were on the drawing board.

Executives have begun reevaluating their organisations’ operating models to better adapt them to a world in which consumers increasingly opt to interact remotely with their banks. This reinvigorated attention to digital service delivery will help keep investment in the requisite technologies flowing from banks, especially those that want to retain a competitive edge in the future.

The pandemic is also likely to be a pivotal epoch in the digitisation journey because of the innovations it will spur—not from banks alone, but also other financial services providers and players, such as fintechs. Some of the innovations may not necessarily be novel to the finance world, but within the Ghanaian context will constitute improvements on the status quo.

It is inevitable that banks will digitise more transactions and services as consumers become more digital-savvy, and will also enhance the simplicity and convenience of those services. The remarkable collaboration in other markets between traditional banks and fintechs to provide value-added services through digital touchpoints like mobile banking applications has the potential of being replicated in the Ghanaian market, with augmented benefits for consumers.

Supportive and stimulative public policy and regulation, which laid the fertile ground for digitisation even before the pandemic, will continue to drive its spread and adoption. The central bank has introduced reforms to expand the array of players, technologies, and services in the payments system, and has positioned itself to become an agile regulator by updating and adapting its laws and regulations to the changing environment.

Perhaps the chief champion of digitisation is the government, which launched three major policies in May—The Cash-Lite Roadmap, The Digital Financial Services Policy, and The National Financial Inclusion and Development Strategy—to reinforce its efforts to digitise the economy and realise universal access to financial services.

Digitisation is helping to improve efficiency and to extend financial and other services to previously unreachable persons and places. This is good for the economy, as it will improve productivity and facilitate a reduction in some of the longstanding inequities of a geographical nature within the population. With its benefits of enhanced service delivery, reduced costs, and greater transparency, digitisation is also good for governance, in both public and private sectors.

Like any other transformation in the way an industry or society functions, digitisation is subject to the law of unintended consequences. All stakeholders—banks, non-financial firms, consumers, regulators, and government—need to be alive to cybersecurity threats that could expose them to losses and breaches of privacy.

In addition, digitisation has the propensity to economise the use of labour, implying the displacement of jobs. Banks, for example, will require fewer tellers as branches shrink amid declining footfall. The ability of workers to stay relevant and competitive, then, will hinge on acquiring new learning, fresh skills, and adaptation.

For all its ills, Covid-19 is a fillip to the process of digital transformation in the financial services industry and the wider economy. A year after the financial sector restructuring programme, banks have the opportunity to leverage another crisis to transform their business and enhance value for their stakeholders.