On 21st March 2019, Ghana passed the Payment Systems and Services Act 2019 (Act 987), as part of her initiatives to digitise her economy. The 2024 Cash-lite Agenda by the Bank of Ghana is to
- Foster efficient payments;
- Improve financial inclusion; and
- Enhance financial innovations.
In an address by Dr. Ernest Addison at the Inauguration of Payment Systems Advisory Committee, Dr. Addison stated that due to the increasing digitisation of payment systems, in the country and globally, it was incumbent on Ghana to develop a strong regulatory framework to oversee the emerging financial digital environment. It is against this sentiment that the Payment Systems and Services Act 2019 (Act 987) was passed.
In this article, the author seeks not only to discuss the inclusion of Fintech companies in the economic framework of Ghana but also to discuss the new Payment Systems and Services Act 2019 (Act 987) which is aimed at ensuring a stronger legal framework within the Fintech industry.
What Is Fintech?
As the world continues to push for a cashless society, many economies have seen a rise in Fintech (financial technology). Fintech broadly refers to computer programs and other technology used to support or facilitate banking and financial services. Popular examples of Fintech used in everyday life in include, crowdfunding platforms, blockchains and cryptocurrencies, mobile payments, and budgeting applications.
- Crowdfunding Platforms
Popular crowdfunding platforms such as GoFundMe and Patreon allow internet users to transfer money to each other. Often used as a means to create a money pool, more people are inching away from the traditional way of seeking sponsorships through letter writing and loan applications; and are instead soliciting funds from fellow internet users worldwide.
- Blockchain and Cryptocurrency
With the advent of bitcoin, cryptocurrency sparked global interest. Cryptocurrency, i.e. virtual or digital money which often takes the form of tokens or coins, uses cryptography to secure financial transactions, and verify digital transfer of assets. This form of Fintech uses blockchain technology, which is an electronic ledger dependent on peer to peer systems, to reduce the incidence of cyber fraud and governmental control and interreference. This ledger is openly shared among a myriad of users to create an unchangeable record of transactions; each transaction is time-stamped and linked to the previous one making it impossible for one user to gain a monopoly or commit fraud. Every time a set of transactions is added, that data becomes another block in the chain thus the name “blockchain”.
- Mobile Payments
Per data from Statista, revenue from mobile payments increased worldwide from $450 billion in 2015 to $930 billion in 2018 and is expected to reach $1trillion in 2019. With the spread of smartphones, mobile payments through applications and platforms like “Apple Pay”, “Paypal”, “Cashapp” and “Venmo” are fast gaining popularity. In some countries, basic mobile phones suffice to transact these mobile payments. For instance, telecommunication companies such as MTN and Vodafone have created an electronic wallet service called mobile money, which allows mobile phone users to receive, store and spend money using their devices.
1. Budgeting Applications
Increasingly, individuals are beginning to rely on their smartphones for even the most basic tasks such as setting alarms and reminders, and now, fiscal responsibility. Users can easily keep track their income and expenses. These applications are often synced with the user’s bank accounts, credit cards, electronic wallets to aid track incoming and outgoing money.
Evolution of Fintech In Ghana
The start of Fintech in Ghana may be attributed to the introduction of the Sika Card in 1997 by then Social Security Bank (now Société General) which allowed holders to conduct cashless transactions. Its main function was to reduce the use of large sums of money for transactions.
Subsequently, the Bank of Ghana incorporated a subsidiary called the Ghana Interbank Payment and Settlement Systems (GhIPSS) Limited in 2007 with the aim of migrating Ghana to an electronic payments society; leading to the introduction of the E-Zwich and Ghlink smartcards which set the pace for biometric banking worldwide.
The interoperability of the E-Zwich and Ghlink cards offered banks and other deposit-taking institutions a digital platform to operate from. The E-Zwich card is currently the only smartcard with nationwide access.
Soon, traditional banks began to collaborate with financial technology companies, to provide their clientele with a variety of services such as digital credit, Unstructured Supplementary Service Data (USSD) services, mobile banking services, and Point of Sale (POS) devices.
In response to the rise of Fintech in Ghana, the government of Ghana passed the first-ever Fintech related legislation, the Electronic Transactions Act 2008, (Act 772), in 2008. The objectives of the Act as stated in section 1 of the Act included:
- The provision and facilitation of electronic communications and related transactions in the public interest,
- Removal and prevention of barriers to electronic communications and transactions;
- Promotion of legal certainty and confidence in electronic communications and transactions;
- Development of a safe, secure and effective environment for the consumer, business and the Government to conduct and use electronic transactions;
- Promotion of the development of electronic transaction services responsive to the needs of consumers;
The growth of society to accommodate Fintech required a corresponding growth in the legal sector. As stated by Lord Denning in PARKER V PARKER (1954) AER 22
“… if we never do anything which has not been done before we shall never get anywhere. The law will stand still whilst the rest of the whole world goes on. That will be bad for both.”
The Electronic Transactions Act 2008, (Act 772) was to be applicable to all forms of electronic transactions including financial transactions and was the primary legislation regulating mobile money transactions. In the same year, the Bank of Ghana (BOG) published the Guidelines for Branchless Banking in Ghana. These guidelines, directed at financial institutions alone, received a less than welcoming response from its intended audience due to its restrictive nature.
This set an enabling environment for the birth of the e-wallet service by MTN Telecommunications in 2009 known as MTN Mobile Money. The service allowed MTN sim holders to make payments, transfer, and store monies, through an electronic account linked to their mobile numbers.
Soon, this service spread across other Telcoms in the country leading to the introduction of Vodafone Cash by Vodafone; Airtel Money by the then Airtel Telcom, and Tigo Cash by the then Tigo Telcom. However, due to challenges in interoperability, transfers and payments were limited between users of the same Telcom service; MTN users could only transfer monies to other MTN users, which was the same for Vodafone and AirtelTigo.
By 2018, according to statistics from the Bank of Ghana, there were over thirty million mobile money across the country. As reported by Quartz Africa, Ghana is currently the fastest growing mobile money market in Africa.
By 2015 mobile money had been firmly established on the Ghanaian landscape. Additionally, more Fintechs such as Expresspay Slydepay, Mazzuma, and Zeepay, had made its way into the Ghanaian corporate industry.
These new Fintech companies provided e-Commerce market places and payment gateway services, expanding the scope of financial-related technology in Ghana. This required a corresponding regulatory system in tune with the financial technology in Ghana at the time. As such, the Bank of Ghana published the Guidelines for E-Money Issuers, which wholly rescinded the Guidelines for Branchless Banking. These Guidelines, which were much more flexible made room for not only financial institutions, but mobile operators as well.
The new Guidelines were introduced to, among other things
- Extend financial services beyond traditional branch-based channels to the domain of everyday transactions;
- Ensure that electronic money is only provided by (a) financial institutions regulated under the Banking Act, 2004 (Act 673) or (b) duly licensed non-bank entities which are engaged solely in the business of e-money and activities related or incidental to the business of e-money and which are regulated and supervised by the Bank of Ghana (“Dedicated EMIs”);
- Ensure that customers of e-money issuers benefit from adequate transparency, fair treatment, and effective recourse.
The Guidelines also introduced a three-tiered account structure approach to knowing customers which allowed individuals with insufficient or no ID (identification) to be included in the formal financial industry. Under these Guidelines, the range of fintech services included
- e-payments
- electronic wallets are known as mobile money
- over the counter transactions,
- savings products in partnership with banks and other deposit-taking agencies
- insurance products.
In 2018, the Bank of Ghana under GhIPSS launched the first-ever interoperability system in Ghana, which not only allowed seamless transactions between the different networks but also gave E-Zwich cardholders the freedom to make transactions at any bank. Prior to the interoperability system, E-Zwich cardholders could only make transactions within the specific bank where the E-Zwich account was held.
Earlier this year, the Ghana Commercial Bank, under the auspices of GhIPSS launched a digital wallet, G-money, and an interoperable QR Code system as part of the efforts to digitise traditional banking.
However, the regulations discussed above were still woefully inadequate to deal with the rise of Fintech in Ghana. The old laws and regulations, as stated by Joseph-Albert Kuuire, failed to make provisions for emerging payment streams such as electronic money, prepaid cards, credit cards, electronic platforms, and payment instruments. Hence, in March 2019, the Government of Ghana passed the Payment Systems and Services Act 2019 (Act 987), which allows for direct regulation of Fintech industries by the Bank of Ghana.
In the words of Dr. Maxwell Opoku-Afari, First Deputy Governor of the Bank of Ghana (BOG),
“Digital innovation is creating unprecedented opportunities for Africa to grow its economy, create jobs, and transform people’s lives… Digitisation is a key component of the “Ghana Beyond Aid Agenda” which is firmly anchored in leveraging technology to promote economic efficiency and inclusiveness for accelerated development and poverty reduction.”
This article was put together with the aim of educating the public on the new Payments Systems and Services Act 2019 (Act 987). Due to its length, this Article shall be published in three parts.
The payment systems and service Act 2019 (Act 987)
The Payment Systems and Services Act 2019 (Act 987), which repeals the previous Payment Systems Act passed in 2003 (Act 662), was assented to by the President of Ghana on 13th May 2019. It is aimed at providing an enabling regulatory environment for digital payments. Its purpose is to:
- amend and consolidate laws and guidelines relating to the connection of payers and recipients of money by payment instruments or electronic money (“Payment Service”)
- regulate institutions that issue electronic money and provide Payment Service.
The Payment Systems Act applies to banks, specialised deposit-taking institutions, Payment Service Providers, Dedicated Electronic Money Issuers, and their affiliates and/or agents.
Under the Act, the Bank of Ghana has overall supervisory and regulatory authority in all matters relating to payment, settlement, and clearing systems. This power gives the Bank of Ghana the mandate, inter alia,
- for the issuance of electronic money, payment instruments, payment service providers and electronic money businesses;
- to ensure that financial services are extended beyond traditional branch-based channels to the domain of everyday transactions;
- to ensure that electronic money is only provided by authorized financial institutions regulated by the Banks and Specialised Deposit-Taking Institutions Act 2016 (Act 930) and duly licensed non-bank entities which are engaged solely in the business of electronic money and activities related or incidental to the business of electronic money;
- to ensure that customers of electronic money issuers benefit from adequate transparency, fair treatment, and effective recourse mechanism;
- for the formulation, monitoring, and review of policies on payment systems in Ghana
- for the authorization of banks and specialized deposit-taking institutions to conduct business under the Payment Systems and Services Act 2019;
- for the licensing of non-bank financial institutions under the Payment Systems and Services Act 2019;
- for the approval of foreign entities in the country who wish to establish representative offices
- for any other payment system or product, the Bank of Ghana may determine.
In furtherance of the mandate of the Bank of Ghana under the Payment Systems and Services Act 2019, the Bank of Ghana is to establish a Payment Systems Advisory Committee to advise the Bank of Ghana on,
- the regulation and oversight of payment systems under the Act
- the operational and technical stands on the payment systems in place
- all other incidental or related matters affecting payment systems and services, and settlements and clearing of payments.
The Payment Systems Advisory Committee is to include a representative from the National Information Technology Agency; the Governor of the Bank of Ghana; a representative from the Ministry of Finance; and relevant stakeholders to be determined by the Bank of Ghana.
These powers of the Bank of Ghana, are supplemented by the power to release notices, and guidelines for the implementation of the Act. These powers, nonetheless, do not give the Bank of Ghana the authority to pass subsidiary legislation. Hence, for matters which require legislation, the Minister for Finance, is the proper authority to pass the legislation.
Per the Payment Systems and Services Act, there are two broad categories of individuals (artificial or natural) who must be licensed or authorised to carry out any business related to electronic businesses, payment systems, and services. These are Payment Service Providers and Electronic Money Issuers.
The grant of the authorisation or license is given by the Bank of Ghana and is valid for 5 years subject to yearly renewal. The yearly renewal process requires payment of the renewal fee, submission of a tax clearance certificate, and any other information requested by the Bank of Ghana.
An application for a license or authorisation may be either accepted or rejected within 90 days after submission of all necessary documentation to the Bank of Ghana. The license or authorisation according to the Act should have been applied for the latest by February 2020; however, this deadline has been since extended to December 2020.
The grant of the license or authorisation, however, may be revoked by the Bank or suspended.
The license or authorisation may be suspended by the Bank of Ghana where the payment service provider has failed to meet the infrastructural or any other requirements specified by the Bank of Ghana. The license or authorisation may also be suspended by operation of law under any other enactment, or in instances where the Bank of Ghana is satisfied that the payment service provider is conducting its business in a manner detrimental to the interest of the payment system. Where the Bank of Ghana intends to suspend a license or authorisation, the Bank of Ghana must give notice to the payment service provider to show cause why the suspension should not be carried out. The Act nonetheless, fails to state how long this notice must be; notice, in this case, must be reasonable.
Should the payment service provider fail to provide payment services for a continuous period of 6 months after the license or authorisation is granted, the license or authorisation may be revoked. The same goes, if the payment system provider ceases to operate for a continuous period of more than 6 months, goes into liquidation or is declared insolvent, or is engaged in a pattern of unsafe financial practices. The revocation is on notice to the payment system provider and does not limit the right of the Bank of Ghana to initiate any other action against the payment service provider. On revocation the payment system provider is mandated to pay to all customers, all electronic monies held, within 10 days of the revocation.
Payment Service Providers
Payment System Providers are defined in Section 102 of the Act as any body corporate licensed or authorised to provide payment services (services to facilitate the transfer of funds between two people using the various forms of payment instruments or electronic money).
According to Sections 7 of the Payment Systems and Services Act 2019, all non-bank entities must acquire a license to operate a payment system i.e. to operate as a payment system provider.
To obtain said license, the corporate body must
- Apply for the license using a prescribed form. The application for the license mandates the company to share its particulars, a business plan, financial projections for at least 5 years, the bank account to be used, expansion plan (if it intends to expand its business operations) and the nature and functionality of the proposed payment services.
- Have a valid certificate from the Data Protection Commission
- Have a minimum of 30% equity participation held by any Ghanaian.
- Maintain a minimum paid-up capital to be determined by the Bank of Ghana.
- Pay the necessary license fee
- Have a board of directors with at least three members, two of which must be residents in Ghana. Out of the two resident directors, one must be the CEO of the company.
- Have the appropriate technology for fraud monitoring, relevant third-party certifications of compliance, a system capable of interoperability, and a cyber-security policy (where applicable).
- Keep proper books of accounts and information technology systems and make sure said books are audited. The audited report is to be submitted to the Bank of Ghana.
- Agree to be bound by the universal principles of consumer protection.
- Set up an effective customer care procedure and system for intended customers of the applicant to submit complaints.
An application for a license may be rejected where,
- The applicant or any of its shareholders have been convicted of a crime involving a financial transaction in any jurisdiction;
- The application contains false or misleading information
- The applicant fails to respond to any other additional requests from the Bank of Ghana concerning the application within 30 days;
- The documents submitted under the application are incomplete or;
- The Bank of Ghana has reasonable grounds to believe that the applicant is incapable of providing the necessary services for the provision of payment systems.
Given the recent decision of the Bank of Ghana to revoke the license of Heritage Bank while action against the owner of Heritage Bank, Seidu Agongo, it is possible for a license to be rejected on basis that there is a pending action involving a crime of a financial nature against the applicant or any of its shareholders. Additionally, under the Banks and Specialised Deposit-Taking Act 2016, a license may be revoked if it is found out that the shareholders of the financial institution are no longer fit and proper persons. The Banks and Specialised Deposit-Taking Act 2016 defines a fit and proper person as,
“a person who is suitable to hold the particular position which that person holds or is to hold as regards
- the probity, competence, and soundness of judgment of the person for purposes of fulfilling the responsibilities of that person;
- the diligence with which that person fulfills or is likely to fulfill those responsibilities;
- whether the interest of depositors or potential depositors of the entity is threatened, or likely to be, in any way threatened by the person holding that position; and
- that the integrity of the person is established and the qualifications and experience of the person are appropriate for the position in the light of the business plan and activities of the entity which the person serves, or is likely to serve, taking into account the size, nature, and complexity of the institution;”
In Section 2 of the Payment Systems and Services Act, the Act is to be read together with all other relevant enactments including the Banks and Specialised Deposit-Taking Act 2016. This suggests that a license or authorisation may be declined where the Bank of Ghana is of the opinion that a person is not a fit and proper person as described in Section 156 of the Banks and Specialised Deposit-Taking Act 2016.
This rejection, however, is not the end of the road for the applicant, the applicant may apply again provided that the noncompliance for which the application was rejected, has been cured.
Where the corporate body seeking to be a payment service provider is regulated under the Banks and Specialised Deposit Act 2016 (Act 930), the corporate body must apply for authorisation rather than a license. The application for authorisation must set out the nature and functionality of the intended services, a business plan, financial projections for 5 years, an expansion plan (if it intends to expand its business operations), and any other information requested by Bank of Ghana. Additionally, the applicant must have fulfilled the following requirements,
- Have a board of directors with at least three members, two of which must be residents in Ghana. Out of the two resident directors, one must be the CEO of the company.
- Pay the necessary processing fee
- Have the appropriate technology for fraud monitoring, relevant third-party certifications of compliance, a system capable of interoperability, and a cyber-security policy (where applicable).
- Agree to be bound by the universal principles of consumer protection.
- Set up an effective customer care procedure and system for intended customers of the applicant to submit complaints.
The application for authorisation may be rejected by the Bank of Ghana, in the event that,
- The application contains false or misleading information
- The applicant fails to provide the additional information requested by the Bank of Ghana within 30 days
- The documentation submitted is incomplete
- The Bank of Ghana has reasonable grounds to believe that the applicant is incapable of running such a business.
Electronic Money Issuers
Electronic money issuers are defined in Section 102 of the Payment Systems and Services Act 2019, as a payment service provider that can issue electronic money. On the successful application of a license or authorisation to be a payment service provider, the corporate body may subsequently, operate as an electronic money issuer, albeit with further authorisation and licensing.
Section 22 of the Payment Systems and Services Act 2019, states the additional requirements to operate as an electronic money issuer as follows;
- Provision of the nature and functionality of the intended electronic money operations
- Information on the proposed electronic money services to be offered
- A business plan
- Financial projections for 5 years
- Expansion plans where applicable
- Any other additional information requested by the Bank of Ghana.
The application to be an electronic issuer may be rejected by the Bank of Ghana, the acceptance or rejection must be communicated to the applicant within 90 days.
The Act also permits corporate bodies to register as Dedicated electronic money issuers. As an applicant for a license to be a dedicated electronic money issuer, bodies do not regulate under the Banks and Specialised Deposit-Taking Institutions Act 2016, must,
- Be duly incorporated under the Companies Act 2019;
- Include in its regulations of incorporation a stipulation that the electronic monies owed to its customers are held in trust and shall not be encumbered in case the company is wound up;
- Ensure that its significant shareholders and directors are fit and proper persons;
- Ensure that it engages in only the business of electronic money and related or incidental activities like money transfers and remittances or set up a separate entity for such business if its main business is different from or not related to electronic money;
- Ensure that the company has 30% equity participation of a Ghanaian;
- Ensure that the body has a customer float account holding bank
- Ensure that any other requirement set by the Bank of Ghana is fulfilled.
Additionally, the body corporate must fulfill the following requirements;
- Provide the particulars of the applicant including a list of its significant shareholders and their corresponding share percentages;
- Information on all bank accounts to be used in the operation of the electronic money business;
- Provide documentary evidence of the capital to be used including the original sources of the funds
Agency relationship under the payment systems and services Act 2019
On acquisition of licenses or authorisation, companies are allowed to appoint agents to serve their customers. This provision makes it possible for the various mobile money agents across the country to operate. Any corporate body that wishes to use agents is must apply to the Bank of Ghana for authorisation first. The applicant is to provide the following information to the Bank of Ghana on the application;
- The type of services the intended agent would provide
- The geographical coverage of the agent over a 3-year period
- The intended users of any master-agent
- Due diligence policies, procedures, and reports on the agent
- Copies of all draft agency agreements which shall inter alia define the rights and responsibilities of both parties, set out the scope of work to be performed thereunder, specify permissible actions, a confidential clause and a clause granting the Bank of Ghana unfettered access to the agent/master agent’s internal systems, information, data, and documentation.
- All policies and procedures available and applicable to the provision of services through the agent
- A description of the technology to be used and all applicable policies and procedures
- Risk assessment report of the operations the agent is to perform including mitigating measures to be adopted to control identified risks
- An internal audit report on the internal controls to be used in the agency and for any master-agent
- Anti-money laundering and countering financing of terrorism policies and procedures
- The operational policies and procedures of the principal including policies on the monitoring and enforcement of compliance by agents and master-agents
- All policy documents on how the principal intends to address the risk of the agent overselling or overcharging
- Full incentive structures for agents and master-agents including fee and revenue sharing structures
The Principal or master-agent, in this case, is also mandated to have policies and procedures for the conduct and due diligence of agents/master-agent, and provide the particulars of the agent/master-agent within thirty days of appointment to the Bank of Ghana. Thus, reducing the risk of financial fraud, which in recent times has proven a challenge to Ghana’s drive for a thriving digitised money industry, particularly for MTN Ghana Ltd.
To ensure that fit and proper persons are engaged as agents or master-agents, the Payment Systems, and Services Act 2019 obliges principals to consider the following in assessing the eligibility of the prospective agent/master-agent;
- The agent/master agent’s criminal records if any in matters relating to finance, fraud, honesty or integrity
- Any negative information in credit reference bureaus
- Business experience and track record where applicable
- Any other matter which impacts on the person
In addition to the above, the agent/master-agent to be, must not be classified as a non-performing borrower by any bank or specialised deposit-taking institution at least a year before the appointment and for the duration of the agency agreement.
After the appointment, the permissible activities of the agent/master-agent shall perform under the agency agreement shall include;
- Functions associated with the marketing of credit, savings, investment, and insurance products;
- Receipt, verification, and forwarding of applications for the functions listed in (a) above to a bank or specialised deposit-taking institution;
- Receipt, verification, and forwarding of applications for payment cards, account opening and checkbooks to a bank or specialised deposit-taking institution;
- Mail delivery to customers
- Other activities authorised by the Bank of Ghana
Among the list of activities that are not permitted for agents are;
- Cashing bank cheques
- Undertaking foreign exchange transactions
- Grant guarantees in any transaction the agent/master-agent performs and/or facilitates
- Appraisals of credit and insurance applications
- Making advance payments from funds released by the principal
- Subcontract part or all of its contractual obligations under the agency agreement.
- Branding or holding themselves out as a bank or special deposit-taking institution
Agents/master-agents are not bound by exclusivity to a specific principal and may enter agreements with more than one principal.
All Agents/master-agents caught engaging in non-permissible activities shall pay an administrative fine of Gh₵12,000 (1000 penalty units).
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This article was put together with the aim of educating the public on the new Payments Systems and Services Act 2019 (Act 987). Due to its length, this Article shall be published in two parts.
The author, Adwoa E. Paintsil is a junior associate at Smith and Adelaide Law, Accra
TO BE CONTINUED……