It is accepted in no uncertain terms that developing a cashless society is the way to go … Charles Benoni Okine takes a closer look at what the tangle is.
The lack of clear policies to allow mobile telephony operators in the country to follow a structured advance towards achieving the full benefits of a cashless economy is said to be one of the key reasons of its low roll-out in the country.
Coupled with this key challenge comes the lack of infrastructure and systems to point to the readiness of the telecom companies for a cashless economy.
According to Mr Eli Hini, Commercial Senior Manager of MTN Mobile Money, electronic transactions are truly ubiquitous and sustainable and a s result, there is the need for the central bank and government support; “support in service promotion on relevant platforms”.
Speaking at the maiden workshop under the auspices of the Network of Communications Reporters (NCR) and sponsored by MTN, he said cashless economy is attainable but can only succeed when pragmatic efforts are put in place to make it work.
Due to the issues of security, he admitted to the numerous issues of cyber-fraud and noted that we need to: “Ensure adequate security to avoid pitfalls, that is, cyber fraud when the systems go into full gear”.
He believes that once the central bank and the government endorses it at every for a, full acceptance by the public will not be a problem.
What is a Cashless Economy
A cashless economy is one in which the purchase of goods and services and the payment of debts and remittances are done through electronic money media, either through, credit and debit cards, direct transfers from one account to another, smart cards, mobile payment systems, and other technologies among others.
Centuries ago, we began with cashless society based mainly on barter, gift economics and debt, and then evolved to the use of money.
In USA, where 50 per cent of taxes are cards, 29 per cent are still cash; Australian cash use still stands at 64 per cent of tax in 2010; UK cash use projected to drop to 45 per cent in 2018
What are the trends:
In Ghana, it began with the famous Sika Card by then Social Secuirty Bank now SG-SSB; Visa Horizon by Stanchart, deployment of ATMs cards cards by banks eCard (TTB, Cal Bank, Ecobank) –
The advantages of this trend was that: there was a reduction in the cost of printing currency notes; Cost of transporting cash along the value chain from the central bank to banks to businesses and consumers was reduced. According to Nigerian Central Bank Governor, Sanusi Lamido Sanusi, direct cost of cash management to the Nigerian banking industry is estimated to be N192b (approximately US$1.9b by 2012)
Cashless economy also results in the reduction in the risks associated with transporting currency notes, both for banks and individuals (robbery, loss from fire or flood, among other things.
It is estimated that four in every 10 Ghanaians carry cash which is more risky; Six in 10 during travel and one in every 10 Ghanaians using informal services had money stolen.
It helps to formalise informal transactions and because it is a transparent process it helps combat crime and corruption while helping with record keeping to reduce room for tax avoidance.
Mobile Payments
According to Hini, mobile payments are defined as chain of payments that are initiated using mobile handsets and other devices, either to directly purchase or to authorize payment for goods and services. Mobile Payments has the potential to serve these unbanked’ and underserved’ segments of the society. Globally just 37 per cent of banks provide some form of mobile banking service.
It is expected that by 2012, there will be over one billion mobile banking users, conducting 47 billion transactions annually and generating more than US$600 billion worth of financial transactions.
Mobile operators will facilitate each of these transactions directly or indirectly. It has great potential to reach entirely new segments because lower costs make it profitable to serve poorer clients. There are also no physical outlets, a situation which make it possible to serve more remote clients.
Large volumes make smaller values and there are no fees which makes it profitable. There are increased service options for consumers – accessibility is 24/7 and the net effect on business and economic growth through e-commerce promotion is positive and leads to enhanced productivity.
Country experiences
In a piece titled “Mobile Banking: The Impact of M-Pesa in Kenya” published on its it is website, the National Bureau of Economic Research, Isaac Mbiti and David N. Weil, wrote that the M-Pesa is a mobile phone based money transfer system in Kenya which grew at a blistering pace following its inception in 2007.
They examined how M-Pesa is used as well as its economic impacts. In analyzing data from two waves of individual data on financial access in Kenya, they find that increased use of M-Pesa lowers the propensity of people to use informal savings mechanisms but raises the probability of their being banked.
Using aggregate data, they calculated the velocity of M-Pesa at between 11.0 and 14.6 person-to-person transfers per month. In addition, they found that M-Pesa causes decreases in the prices of competing money transfer services such as Western Union.
While they find little evidence that people use their M-Pesa accounts as a place to store wealth, their results suggest that M-Pesa improves individual outcomes by promoting banking and increasing transfers.
The Central Bank of Nigeria (CBN) last year announced a new cash policy with the objective of reducing cash payments and encouraging electronic payments. The new policy stipulates that going forward, there will be a charge on cash withdrawals or deposits that are above N150, 000.00 for individuals or N1 million for corporate entities.
In a circular dated 20th April, 2011 and addressed to all banks; CIT Companies; Payments System Service Providers Switches; Card Acquirers, Issuers and Processors, the apex bank wrote “in view of increasing dominance of cash in the economy with its implication for cost of cash management to the banking industry, security, money laundering, among others, the Central Bank of Nigeria, in collaboration with the Bankers Committee, is adopting policies to reduce the high usage of cash, moderate the cost of cash management and encourage the use of electronic payment channels.”
It has not been successful in Nigeria because of many factors including unreliable power sources.
Way Forward.
The value propositions a cashless economy are clear and unambiguous because in terms of convenience it is clear that sending and receiving money instantly can be instant and the recharge of prepaid credits is done whenever and wherever one wishes.
There is cost-effectiveness a drastic reduction in banking costs and speed of payments.
In terms of security, it is obvious that the MobileMoney solution is based on Banking Industry security standards. Accounts are password protected, data is encrypted; User authentication is required, authorization is profile specific while account holder confidentiality is assured.
It , therefore requires that the push from central government through the Bank of Ghana is hastened to ensure that the system is well accepted by all to help enhance growth.
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