Money Transfer in Ghana Case Study

The introduction of mobile money service is taking place in isolation but in parallel with the advent and expansion of other financial electronic payments services. One of these is E-Zwich, an electronic platform that enables the loading and spending of electronic cash and also allows the settlement of inter-bank claims in addition to online transactions. Others are being made available over the Internet and through SMS-text messages. The government regards these services as banking. They are strictly regulated and licensed by the Central Bank- Bank of Ghana under its branchless banking policy. Both MTN and ZAIN SIM cards are enabled to utilize the service but each new subscriber needs to register for the service at before it is activated. Upon activation, the user is provided with a secure electronic â€Å"wallet† where funds can be disbursed or uploaded. The users can either exchange electronic money for physical cash (cash out) at shops, partner banks and accredited agents or make use of it in making purchases or transfers. Enabling a Cash Flow to Rural Areas In general, the most popular mobile money service is money transfer. The trend is for users in urban areas to transfer funds to recipients in rural areas. Traditionally in Ghana, city dwellers often send money to members of their extended family living in rural areas. Other typical services include the purchase of mobile phone airtime, goods and services through electronic transfer of money from user's wallet to the merchant's account. Commenting on money transfer via mobile phones, Carl NiikoiAshie, an mcommerce (mobile commerce) specialist at Zain who works on ZAP, said: â€Å"The customers can ‘cash in' by loading money onto their ZAP wallet, then send the money to someone else on their phone in a simple process. The person receiving the money can ‘cash out' by going to any of our outlets and exchanging the evalue for physical cash. We're seeing tremendous growth in the service across the country, with more cash-in done in the major cities while cash-outs are seen predominantly in the smaller towns. † Ashie sees a lot of evidence that his product is reaching Ghana's unbanked. â€Å"Users do not need to have a bank account to use the service. Currently, there are a lot of monetary transactions that take place outside the confines of the banks and it will take a product like ZAP to fill the void while providing a secure, convenient and trustworthy channel of transaction,† said Ashie. â€Å"Some customers have also requested products that will allow them to use their ZAP wallets for savings and hence enjoy interest on their savings, just as pertains in the traditional bank setting. † Today, consumers have a variety of ways to send and receive funds or money transfers. Although using cash to send a money transfer is the most popular method for most people, more and more people want additional options: to send and/or receive funds on the internet, over the phone, and now, on their mobile phones. Mobile money transfer is simply another way to send money. It is a transfer of money to a receiver in which the funds are deposited into a mobile or â€Å"virtual† wallet. As the number of mobile phone subscribers in Ghana increases, so does the market for mobile money services. The majority of Ghanaians lack any formal bank account. mobile money could change the shape of financial transactions in the country. An estimated 80 percent of Ghanaians are â€Å"unbanked† – meaning they conduct their transactions outside the banking sector with no access to financial services. Products like â€Å"mobile money,† that enable safe and secure money transfers without the use of a bank account, could have a major impact on this unserved segment of the population. Mobile money gives anyone with a mobile phone the ability to transfer money, make cash payments and conduct other financial transactions over the phone. Mobile money is a relatively new phenomenon in Ghana. It was first introduced by the telecom company MTN some years ago. MTN Mobile Money operates in partnership with nine banks. Currently, more than 2 million Ghanaians are registered as active users. MTN expects this number to grow as a result of the resources they have committed to educating subscribers about switching from the traditional mode of cash payments to electronic payments. Earlier this year, Zain became the second mobile operator to provide mobile money services through the introduction of ZAP, working with three banks. The coverage and accessibility that mobile services provide is of increasing interest to the financial services sector. Countries are considering mobile technology to reduce the cost of delivering financial services to clients beyond the reach of traditional financial services. ECONOMIC BENEFITS Mobile money transfer has some socio-economic benefits in Ghana, some these are Firstly Improved Financial Access, consider a situation whereby a given business has to carry out a common payment operation, such as bill payment or funds transfer, and that operation demands transportation with all inconveniences attached to it. If the same transportation cost were paid to a service that would effect the same payment on behalf of the company over the mobile phone instead, this more convenient method brings about saving time and energy for other activities, in so doing increasing productivity by performing two tasks instead of one at the end of the day. It appears, therefore, that using your mobile phone to make payments represents to a very large extent convenience taken to another level. By exploiting the extensive reach of mobile networks, the mobile industry has the opportunity to complement and extend remittance channels, make transferring money significantly more convenient and also bring many people into the formal banking system. With more than 15,000,000 mobile phone subscribers in Ghana, the potential market for these new services is significant. Mobile money presents certain advantages for Ghanaians without access to banks. Penetration of mobile services across the world is increasing rapidly. In 1990 there were just over 11m mobile phone users worldwide. Today, over 3 billion consumers own mobile phones. At the same time, the possibility to technically integrate mobile and financial services is becoming increasingly apparent. A recent survey conducted by Edgar Dunn & Company and the GSM Association (GSMA) predicts that, given an improved regulatory environment, in 2012 7% of the subscriber base in developed countries and 4% in developing countries will initiate at least one cross-border remittance. This equates to just over 248 million consumers in 2012 using mobile money transfer services. Financial access for the poor is still an issue in many developing countries. There are currently approximately only 0. 5 million bank branches globally with only 1. 4 million ATM's compared to over 3 billion mobile customers worldwide. The mobile device has the potential to extend access to financial services for the banked, but also for the under-served and unbanked parts of the population. This improved, financial access can be achieved by exploiting the extensive reach of mobile networks. Traditional remittance channels can be complemented and extended with mobile money transfer services. Thus making mobile money transfers significantly more convenient, bringing many remittances from informal channels into the formal system. Secondly it reduces the transaction cost of money transfers. Bank transfers and specialist remittance companies can be prohibitively expensive for small denomination transfers, limiting the ability of individual workers to distribute funds to a larger number of people and penalizing those sending small amounts. Retail premises and staff costs increase overheads, leading to high commissions, especially for remittances below ghc100. It drastically cuts down the cost of providing service to customers. A study carried out proved that there is a substantial cut in customer care cost. This results from the fact that mobile money transfer eliminates the need for costly call centers and frees up customer service help desk. In addition real-time information is provided to customers and employees. Using a mobile platform such as SMS fro simple task as payment reminders and funds transfer can reduce the burden on IT and personal resources. This has also been found to reduce cost and errors associated with paper-base operations. Significant reduction in operational costs means additional revenues can be invested in other areas of the business. Mobile technology can lower the cost of remittances as it removes the need for physical points of presence and ensures a timely and secure method of transaction. This concept of ‘mobile money' is extremely attractive to low income users in particular Mobile money transfer services can make remittances more affordable. Mobile technology lowers the cost of remittances as it removes the need for physical points of presence by banks and ensures a timely and secure method of transaction. This concept of ‘mobile money' is extremely attractive to low income users in particular. It reduces the transaction costs of financial services for the poor, especially those in rural areas where financial services seldom exist. Mobile money saves the cost of travel and time spent visiting the nearest town to access financial services. As noted in AudienceScapes research, mobile money provides people with a way to transfer money safely and keep (or even increase) their savings. From the customers’ perspective, mobile banking is relatively easy to use, and this is another advantage compared to traditional means of banking as well as electronic banking, given the fact that text messaging has become a common application of mobile phones. Thirdly mobile money transfers drive growth and development. Mobile money has the potential to create jobs directly through hiring in the mobile phone companies, partner banks and the more than 4,000 merchants involved in Ghana's mobile money system. Key partners in the provision of mobile money services include commercial banks, mobile phone operator's shops, distributor shops and accredited agents. Jobs may be created indirectly as mobile money contributes to growth in Ghana's business and trade. If deployed successfully, mobile money could help individuals harness funds outside the banking system and channel them into the formal financial sector, thus making it easier to gather funds for investments. Not surprisingly, the general manager of Mobile Money-MTN, Bruno Akpaka, sees many benefits for Ghana as it continues adopting this service. Akpaka believes mobile money will â€Å"help trade activities within the country and foster strong business partnerships. † â€Å"The creation of wide merchant footprints in places where traditional banks cannot go also contributes to bringing people into this new model of financial transactions,† said Akpaka. â€Å"MTN Mobile Money is bridging this existing huge gap between the unbanked and the financial sector. † Mobile-financial convergence creates socio-economic benefits. It is widely accepted, that increased access to mobile telephony in developing countries brings considerable benefits to the economies of the respective countries. It is estimated that an extra 10 mobile phones per 100 people in a typical developing country lead to an extra 0. 89 – 1. 210 percentage points of growth in GDP per person. In addition, remittances are an important engine for growth and development in developing countries. The World Bank estimates that reducing remittance commission charges by 2-5% could increase the flow of formal remittances by 50-70%, boosting local economies. Reducing the cost of sending each individual remittance would encourage the delivery of lower value remittances, at smaller values than today's average transfer of ghc200. Financial regulators have the opportunity to use the development of mobilefinancial convergence to achieve their aims: ? ? ? ? New services offered to consumers, i. e. mobile money transfer services (innovation) Cheaper prices through more efficient use of the mobile infrastructure (competition) Across all consumer groups (banked, under-banked, unbanked) Transition remittances from informal to formal remittance channels (more visibility of money flows) Both the mobile and the financial industry benefit from this opportunity to cooperate in new ways providing innovative services to an increased customer base. The challenges facing the market. Access Access to the facilities to receive money is often limited, particularly for the poorest people in more rural areas where the banking sector is under represented and a largely cash-based economy exists. There are currently approximately only 0. 5 million bank branches globally with only 1. 4 million ATM's compared to almost 2 billion mobile customers worldwide. Those who would benefit the most are therefore the least likely to benefit from remittances from migrant workers, locked out of their market through their social, economic and geographical position. Cost Bank transfers and specialist remittance companies are prohibitively expensive for small denomination transfers, limiting the ability of individual workers to distribute funds to a larger number of people and penalising the poor who can only afford to send small amounts. Retail premises and staff costs increase overheads, leading to a high fixed commission cost per remittance with industry revenues estimated at an average 15% per transaction, increasing to over 25% for remittances below ghc100. Handset operability There are a large number of different mobile phone devices and it is a big challenge for banks to offer mobile banking solution on any type of device. Some of these devices support Java ME and others support SIM Application Toolkit, a WAP browser, or only SMS. Initial interoperability issues however have been localized, with countries like Ghana using portals like R-World to enable the limitations of low end java based phones, while focus on areas such as South Africa have defaulted to the USSD as a basis of communication achievable with any phone. The desire for interoperability is largely dependent on the banks themselves, where installed applications (Java based or native) provide better security, are easier to use and allow development of more complex capabilities similar to those of internet banking while SMS can provide the basics but becomes difficult to operate with more complex transactions. There is a myth that there is a challenge of interoperability between mobile banking applications due to perceived lack of common technology standards for mobile banking. In practice it is too early in the service lifecycle for interoperability to be addressed within an individual country, as very few countries have more than one mobile banking service provider. In practice, banking interfaces are well defined and money movements between banks follow the IS0-8583 standard. As mobile banking matures, money movements between service providers will naturally adopt the same standards as in the banking world. Security Security of financial transactions, being executed from some remote location and transmission of financial information over the air, are the most complicated challenges that need to be addressed jointly by mobile application developers, wireless network service providers and the banks' IT departments. The following aspects need to be addressed to offer a secure infrastructure for financial transaction over wireless network: 1. Physical part of the hand-held device. If the bank is offering smart-card based security, the physical security of the device is more important. 2. Security of any thick-client application running on the device. In case the device is stolen, the hacker should require at least an ID/Password to access the application. 3. Authentication of the device with service provider before initiating a transaction. This would ensure that unauthorized devices are not connected to perform financial transactions. 4. User ID / Password authenticationof bank’s customer. 5. Encryptionof the data being transmitted over the air. 6. Encryption of the data that will be stored in device for later / off-line analysis by the customer. One-time password(OTPs) are the latest tool used by financial and banking service providers in the fight againstcyber fraud . Instead of relying on traditional memorized passwords, OTPs are requested by consumers each time they want to perform transactions using the online or mobile banking interface. When the request is received the password is sent to the consumer’s phone via SMS. The password is expired once it has been used or once its scheduled life-cycle has expired. Because of the concerns made explicit above, it is extremely important that SMS gateway providers can provide a decent quality of service for banks and financial institutions in regards to SMS services. Therefore, the provision of service level agreements (SLAs) is a requirement for this industry; it is necessary to give the bank customer delivery guarantees of all messages, as well as measurements on he speed of delivery, throughput, etc. SLAs give the service parameters in which a messaging solution is guaranteed to perform. Scalability & Reliability Another challenge for the CIOs and CTOs of the banks is to scale-up the mobile banking infrastructure to handle exponential growth of the customer base. With mobile banking, the customer may be sitting in any part of the world (true anytime, anywhere banking) and hence banks need to ensure that the systems are up and running in a true 24 x 7 fas hion. As customers will find mobile banking more and more useful, their expectations from the solution will increase. Banks unable to meet the performance and reliability expectations may lose customer confidence. There are systems such as Mobile Transaction Platform which allow quick and secure mobile enabling of various banking services. Recently in India there has been a phenomenal growth in the use of Mobile Banking applications, with leading banks adopting Mobile Transaction Platform and the Central Bank publishing guidelines for mobile banking operations. Application distribution Due to the nature of the connectivity between bank and its customers, it would be impractical to expect customers to regularly visit banks or connect to a web site for regular upgrade of their mobile banking application. It will be expected that the mobile application itself check the upgrades and updates and download necessary patches (so called â€Å"Over The Air† updates). However, there could be many issues to implement this approach such as upgrade / synchronization of other dependent components. Conclusion. For customers and businesses in the country, it is a unique platform to bring convenience in financial transactions to customers, an area which before this period had been beyond our domain and reach for those of us in Ghana and most of Africa. For the customer, its time and cost saving elements cannot be over emphasized and the earlier we adopt electronic ways of financial transactions, the better it will be for a whole society that would see a transformation, resulting from the ability to cut down on time lost accessing basic services like funds transfer amongst businesses and individuals.