Financial Technological (Fintech) Firms: Are they posing a threat to Ghanaian banks or an opportunity to augment banking services?

In the new digital economy, digital transformation or financial technology has become a central issue of great concern. The pace at which technology is transforming the world and having a significant impact across the globe is unprecedented. The innovations brought by technology have given rise to the use of Artificial Intelligence (AI), robotics and the Internet of things (IoT). It should be noted that though the advancement and the rise in the use of technology looks promising it comes with its own challenges. In addition to challenges, the outbreak of COVID-19, which claimed many lives, also presented new opportunities. The pandemic accelerated the use of technology to transact business and re-shaped all sectors of the global economy. The use of technology in the financial sector has brought tremendous innovations in the global financial sector. Financial technological (Fintech) firms are harnessing the importance of technology to produce innovative products, meet customers’ expectations and reduce human interaction with their customers. This paper aims to shed light on the threat Fintech firms are posing to Ghanaian banks. This paper is intended as an addition to the existing scholarship on risk management and financial technology.

The objective of this paper is to determine if Financial technological firms (Fintech) are posing a threat to Ghanaian banks or can augment banking services?


Overview of Financial Technology (Fintech)

At the outset, it is imperative to define the key concept “Financial Technology” (used interchangeably with digital transformation). A burgeoning body of research has described Fintech as the use of technology to improve and make financial services convenient for customers within the financial sector (Barberis, 2014; Schueffel, 2016; Cho, 2021). Contemporary international institutions have defined Fintech as the use of technology to provide financial services (Financial Stability Board – FSB, 2017; IMF, 2018; World Bank, 2022). This paper defines Fintech as innovations in the financial sector because of the use of software and mobile applications to enhance services to customers. It is worth noting that digital transformation has made transactions smarter and virtual. Fintech firms provide several services, notably, crowdfunding/peer-to-peer (P2P) lending, mobile payment systems, blockchain /Cryptocurrencies, regulation technology (Regtech) and regulatory sandbox as well as Artificial Intelligence (AI) and Robo advisors. These services are provided to individuals, households and business owners.

In Sub-Saharan Africa (SSA) Fintech firms are making considerable progress to catch up with the Big technological giants like PayPal, Stripe, AliPay and Ant technology. The progress made by SSA Fintech firms looks promising and these firms need the necessary support to expand their services to other continents. According to the World Bank (2017), developing countries like Kenya has made remarkable progress in achieving financial inclusion with mobile technology. The M-Pesa model has been key to achieving this feat because the approach adopted by the Central Bank of Kenya has permitted financial institutions and non-bank institutions to provide mobile money payment. This approach has ensured that 80 percent of Kenya’s population use mobile money services (World Bank, 2017). Kenya is leading SSA in the fintech industry followed by South Africa and Nigeria (Global Fintech Ratings Report, GFRR, 2021). A well-known example of SSA ranking in the Fintech industry is illustrated in Table 1.



Table 1 provides an overview of rankings of SSA countries in the global Fintech industry according to the location/city, services provided by the Fintech firms and the supporting IT infrastructure as well as facilities needed by the Fintech firms to operate. It can be inferred that Kenya met these requirements set out by the Global Fintech index ratings. Kenya should be commended for placing first in SSA and 31st globally. This suggests that Fintech firms in Kenya are utilizing opportunities provided by Fintech to expand their operations and provide innovative services to their customers.

Lukonga (2018) makes a meaning contribution to why Fintech firms are booming in Kenya. He argues that the use and adopting of mobile money to transact business specifically, deposit, transfer as well as pay for goods and services is a major reason why Fintech firms are thriving in Kenya. The use of “M-pesa”, a mobile banking service that allows its users to receive and send money through their phones without internet. “M-pesa” is a leading Africa’s mobile payment service owned by both Vodafone and Safaricom. Some services provided by M-pesa to its users are deposit, money transfer, withdrawal, savings, access to credit as well as payment for goods and services. These services have made “M-pesa” a successful mobile payment service provided in Kenya. The World Bank (2016) points out that, the reason why Kenya has been successful in the use of mobile technology thus “M-pesa” is due to it favorable regulation. The central bank of Kenya has been flexible in regulating mobile payment services by favoring all banks, non-banks and mobile network operators to provide mobile money services. The flexibility of the regulation of mobile services has ensured that 80 percent of Kenya's population use mobile money services.

It has been argued that the required IT infrastructure such as the availability of electricity in every part of the country, cellular/mobile network technologies like 5th generation mobile network (5G) is essential to accelerate internet connectivity; upgrading the payment systems that will facilitate the clearing and settlement of financial transactions; access to capital for Fintech firms and the availability of skills/talent in the field of engineering, programming and ICT has been the important reasons why Kenya is thriving in the Fintech industry globally (Lukonga, 2018). For Ghana to catch up with Kenya and to perform better in the Fintech industry globally, the government should invest hugely in IT infrastructure, identify IT talents/skills, establish a favorable business environment to provide capital to Fintech firms and protect consumers.

Ghana’s Fintech Industry

Ghana is currently ranked 71st according to the 2021 GFRR. Ghana can improve on it position if the government invests and creates the necessary IT infrastructure for Fintech firms to operate. The Australia Africa Chamber of Commerce (AACC, 2022) suggests that Ghana’s journey towards Fintech started in 1997 when the erstwhile Social Security Bank introduced a card called “sika card” to allow cashless transaction among its customers. In 2008, the government of Ghana introduced e-zwich, a smart payment system to be used in banks and other financial institutions to promote cashless transactions. This paper argues that these initiatives by the government did not reach their potential because digital illiteracy was high at the time of its introduction.

Ghana’s Fintech industry has played a key role in transforming Ghana’s financial sector and the Ghanaian economy. Ghana’s Fintech industry is utilizing the opportunity provided by technology to provide jobs for people with skills in IT, providing swift, convenient and innovative digital services to customers as well as expanding its customer base. Ghana’s Fintech industry is growing rapidly and is boosting Ghana’s digital transformation agenda. Recent statistics from the Bank of Ghana show that forty-six (46) Fintech firms have been registered and provided with a license to operate (BoG, 2022). Licenses have been issued to mobile money operators and payment service providers. The Fintech firms are registered and given licenses based on the services they render. The license is grouped into three (3) categories namely, Dedicated Electronic Money Issuer (DEMI), Payment Service Provider (PSP Enhanced, Medium & Standard) and lastly Payment and Financial Technology Service Provider (PFTSP).



The pie chart above shows the breakdown of the total Fintech firms in Ghana according to their category. The PSP (Enhanced) has been issued with 34 licenses, followed by DEMI, 5; PSP (Medium, 4); PSP (Standard, 2) and PFTSP, 1 license. These Fintech firms are driving and transforming Ghana’s fintech ecosystem. This paper commends the government of Ghana for establishing the necessary IT infrastructure and creating an enabling environment for fintech firms to thrive. The government is encouraged to do better to ensure Ghana performs better in the GFRR rankings to attract more investors into the economy. It is notable from the pie chart that Ghana’s Fintech industry is dominated by payment service providers. Fintech firms in Ghana have adopted innovative ways to make transaction easier, simpler and more convenient than traditional banks. In his paper, I argue that the use of smart phones has been a major driver in the Fintech industry in Ghana. The services provided by Fintech firms in Ghana has led to an increase in intermediary efficiency, data usage and a lower transaction cost.

Positive welfare effects (benefits) of Fintech to the Ghanaian economy

Fintech has proven to be a driving force in the global financial sector. It uses the internet to expedite and simplify the provision of financial services. It helps individuals, households and businesses to undertake several financial services such as online lending, digital payments, online trading, peer-to-peer lending (P2P), business-to-business lending (B2B), international money transfer, online foreign exchange trading. Fintech can generate positive welfare effects (benefits) such as; enhance intermediary efficiency, reduce information asymmetry and expand financial inclusion. This paper argue that Fintech offers a lot of opportunities and benefits to spur Ghana’s economic growth. Some opportunities and benefits provided by Fintech are; it can attract investment into Ghana’s economy, expand financial inclusion, enhance intermediary efficiency in Ghana’s financial sector, promote technological innovation and increase industrial productivity.

Attract investment into Ghana’s economy

Fintech firms provide services at a reduced cost to the unbanked population and have increased remittances across the border. It should be noted that Fintech firms provides swift, convenient and affordable services. KPMG (2022) claims that Fintech payment continues to soar in Asia and Africa. These countries are attracting a lot of investment. Africa attracted $1.6 billion worth of investment with Kenya, Nigeria and South Africa been the beneficiary countries . A Nigerian fintech firm by name OPay recently secured an investment worth $400 million from a Japanese venture capital firm SoftBank venture capital. Also in Asia, an India online payment company BillDesk was acquired by Prosus by an amount of $4.7 billion. The World Bank (2022) share similar view suggesting that digital payment continues to dominate countries like Kenya, China as well as Bangladesh and these countries are attracting a lot of investment into their economy. This study propose that the government of Ghana should invest hugely in IT infrastructure and create the enabling business environment to ensure that Fintech firms in Ghana attracts such investment. It is worth mentioning that the Global Fintech investment at the end of 2021 amounted to $210 billion attracting 5,684 deals (KPMG, 2022).

Expand financial inclusion in Ghana

Fintech firms can make financial products and services accessible and affordable to individuals, households and businesses regardless of their location. The use of mobile applications, online platforms and technology specifically AI, blockchain/cryptocurrency can promote inclusive growth. These technologies can help financial institutions in their operations such as credit risk management, detect fraud and close the income inequality gap. In Ghana some Fintech firms like Korba, eTranzact, Hubtel amongst others collaborates with banks, insurance companies, mobile money operators to provide financial services such as the payment of utility bills, online digital payment and funds transfer. Ghana’s Fintech sector is dominated by mobile payment. Recent statistics from the Bank of Ghana shows that active mobile money account has increased from 17.9 million at the end of 2021 to 20.4 million at the end of December, 2022 (BoG, 2023) .
Active mobile money agents have also soared to 505 thousand from 442 thousand from the end of December, 2021 to end December, 2022. This suggest that mobile payment plays an important role in the financial inclusion process. Lukonga (2018) claims that in Kenya mobile payment have been stationed at every part of the country to provide services to the unbanked population. The use of mobile technology has increased financial inclusion in Kenya and is not surprising that 80 percent of Kenya’s population use mobile technology to access financial services (see World Bank, 2016). In this paper I argue that regulators of mobile money in Kenya have put in place a friendly financial inclusion policy and an enabling business environment that has accelerated the financial inclusion in Kenya. To ensure that Ghana achieve 85% of its financial inclusion by 2023 as stated in the National Financial Inclusion and Development Strategy (NFIDS) then the Bank of Ghana is encouraged to formulate friendly financial inclusion policies to enable Ghana to achieve that feat.

Promotes technological innovation and increase industrial productivity

Fintech has brought innovations into the global financial sector, increasing productivity and minimizing corruption. Fintech firms are utilizing data effectively to help financial institutions make informed decisions and reduce human error. In advanced countries, financial institutions notably, banks are now using data, machine learning tools as well as AI to improve service delivery and to make better decisions. According to KPMG (2022) banks like Standard Chartered Bank, Hongkong and Shanghai Banking Corporation Limited (HSBC) are now using Quantexa to handle records, solve financial crime, and make faster, accurate and informed decisions. Quantexa is a global software analytics and data organization located in the UK that uses modern technology in big data and AI to make informed decisions relating to customer intelligence, credit risk and data management. Fintech has changed the face of banking. Banks have accepted to use big data and AI to build their core-banking engine. Banks have added value to their services using a modern core banking platform called Thought Machine Vault to move core banking systems to the cloud.

Clients can now access banking services everywhere and any time. The Thought Machine Vault is designed to enable banks to overcome their infrastructure challenge and meet client’s needs. Reputable banks such as Standard Chartered, Lloyds Banking Group, JP Morgan Chase are now on the vault platform called Thought Machine Vault. It should be noted that in as much as Fintech has led to a reduction in labor cost, it has the tendency to increase unemployment with use of technology in banks.

Challenges Fintech can pose to Ghana’s economy

Lukonga (2018) points out that Fintech firms presents some risks like cyberattacks, data privacy as well as consumer protection and that cyber-attack poses a significant risk. In the same line of thought, the World Bank (2022) holds the view that regulators are struggling to supervise Fintech business models and their operations. According to IMF (2018) cyberattacks have the tendency of posing systematic risk, destabilizing the financial system and be an obstacle in achieving financial inclusion. Ghana’s financial sector has experienced a surge in fraud among Electronic Money Issuers (EMI - Mobile Money - MoMo) whiles Banks and Special Deposit Institutions (SDI) have witnessed a reduction in fraud cases. At the end of 2021, EMI (MoMo) experienced an increase in fraud resulting to a loss of GH¢12.8 million from 12,350 MOMO related fraud incidents reported (BoG, 2021). Banks and SDI saw a marginal decline in fraud cases from 2,670 in 2020 to 2,347 in 2021 representing a fall in fraud cases in 12.09 % . The foregoing suggests that Mobile money fraud is on the rise and the central bank should educate EMI on ways to prevent mobile money fraud and tighten cyber security.

Services provided by Fintech firms

Some services provided by Fintech are; cryptocurrencies/blockchain, crowdfunding/peer-2-peer, mobile payments systems, regulation technology (Regtech) and regulatory sandbox, lastly Artificial Intelligence (AI) and Robo advisors. These trends have transformed the global financial sector.

Cryptocurrency/Blockchain

Countries like Egypt, Iran and the United Arab Emirates (UAE) have shown strong interest in cryptocurrency and are using it to attract investors into their countries. Similarly, countries such as Armenia, Gerogia and Kazakhstan are in advance stage in the use cryptocurrency by putting up ATMs to facilitate the use of cryptocurrency and have issued Initial Coin Offers (ICO) in Bitcoin (Lukonga, 2018). In contrast, some countries are having challenges accepting cryptocurrency as a legal tender because of the lack of regulation to back it use. Cryptocurrency is a digital currency exchanged via a decentralized ledger (DLT) such as a blockchain. The IMF calls cryptocurrency virtual currency. On the other hand, a block chain is a technology that enables a cryptocurrency to work. Examples of cryptocurrency are bitcoin, Ethereum, cardano, binance coin and dogecoin. According to the Cambridge Centre for Alternative Finance (2017), the global market value of cryptocurrency surged from $18 billion to $660 billion from 2017 to 2018. Investment in the global cryptocurrency and blockchain industry increased to $30 billion in 2021 from $8.2 billion in 2018 (KPMG, 2022). The increase in investment in the cryptocurrency industry has called for stakeholders to mount pressure on regulators to regulate the crypto sector and come up with clear policy guidelines as well as rules regarding the trading of cryptocurrency.

IMF (2022) maintains that it is important to regulate cryptocurrency to protect consumers from losing huge amounts of money. In SSA, countries like Nigeria, Kenya and South Africa have the largest crypto users and crypto transactions as at mid-2021 amounted to $20 billion. Countries such as El Salvador and the Central African Republic are using Bitcoin as legal tender. This paper argues that the lack of regulation backing cryptocurrency may weaken monetary policy and create financial as well as macroeconomic instability. In Ghana, cryptocurrency is considered illegal. To protect consumers, ensure financial inclusion as well as macroeconomic stability, the IMF/World bank are considering adopting a digital currency called Central Bank Digital Currency (CBDC) to be issued by central banks. The CBDC is a digital or electronic money in digital form of fiat currency to be controlled and issued by central banks. Countries like Bahamas has adopted and rolled out CBDC while in SSA, Nigeria has fully rolled out its CBDC called eNaira in October 2021 (IMF, 2021; World Bank, 2022). Ghana has made remarkable progress in adopting the digital currency called eCedi. The Bank of Ghana in August 2021 collaborated Giesecke+Devrient (G+D) a global security group based in Munich, Germany to pilot the CBDC (eCedi) as part of the government’s Digital Ghana Agenda. Ghana’s digital Agenda seeks to promote a cashless economy and expedite payment with the use of smartphone.

Crowdfunding/Peer-2-Peer

Crowdfunding is an online lending platform that raises funds/capital for an individual/businesses or group of people. P2P is also an online platform that seeks to lend/borrow money to individuals/businesses/group of people. These online platforms help investors get access to credit to fund their business. Crowdfunding is the second most dominated sector of Fintech and countries like UAE, Jordan have these platforms for donations (Lukonga, 2018). Customers and businesses who engage in crowdfunding/P2P are exposed to fraud, misappropriation of funds and lose their money at the end (World Bank 2022). Lack of regulation governing online funding and consumer protection has affected the operations of crowding/P2P firms.



Table 2 shows how crowdfunding/P2P experienced an astronomical growth from 2013 to 2018 from $11.680 billion (USD) to $301.7 billion (USD). Funding volume grew globally to $301.7 billion in 2018; but the annual growth rate declined by 28% in 2018. The fall in decline was caused by China due to lack of regulation of crowdfunding/P2P. In 2016, as many as 1 million investors lost US $7.6 billion through a scandal. After the scandal, the government of China has been very strict and have formulated laws to regulate crowdfunding/P2P (Ernst & Young, 2016). SSA is performing considerably well in the crowdfunding /P2P sector. Lack of regulation, consumer protection and data privacy has become an issue of great concern in the capital raining activity market.

Mobile payments systems

Mobile payment is playing a significant role in the global financial inclusion process and Ghana is no exception. Mobile money transactions have expanded financial inclusion globally in terms of value and volume of transactions. SSA has experienced an exponential growth in mobile money transactions (in terms of value and volume) from 2017 to 2020 amounting to $ 180 trillion (World Bank, 2022). Ghana has experienced a significant growth in mobile money transactions. Figure 2 presents a summary of statistics of mobile money transactions in terms of number and the value of transactions from December 2018 to December 2022. The value of transactions soared from 22.6 billion cedis in 2018 to 122 billion cedis in 2022. Similarly, the value of the number of transactions rose from 150 million cedis from 2018 December to 488 million cedis in 2022.

Methodology

The study is a review literature and qualitative. It reviewed several papers on Fintech, the positive welfare of Fintech and used secondary data from the central bank to determine how Fintech might negatively affect Ghana’s mobile payment system as well as the threat it poses to Ghana’s banking sector.


Key Findings



Value and Volume of Mobile Money Transactions in Ghana from December, 2018 to December, 2022.

Note: This bar graph summarizes mobile money transactions (number and value of transactions) from December 2018 to December, 2022. Adapted from (BoG, 2022).

Regulation technology (Regtech) and regulatory sandbox

Regtech is the application of technology (such as application programming interface (API), Know Your Customers, KYC) to detect fraud, manage risk and protect consumers as well as investors (CCAF, 2019). The objective of Regtech is to strictly regulate Fintech firms to ensure they operate effectively and efficiently. Regulation compliance has become very expensive after the Global Financial Crisis in 2008/9 and Fintech firms that violate Regtech laws are fined huge amounts of money. Regtech requires Fintech firms to use technologies such as machine learning, robotics, artificial intelligence, blockchain and API to perform functions like; monitoring payments transactions (particularly in real-time), modelling, scenario analysis and forecasting and monitoring financial institution’s internal culture and behavior. Regtech also requires Fintech firms to use risk assessment tools like - Risk Based Capital (RBC) regulations (by Basle III and by national supervisory bodies), liquidity coverage ratio (LCR), Net Stable Funding Ratio (NSFR). Global investment in Regtech amounted to $10 billion at the end of 2021 in the cryptocurrency sector and due to Merger and Acquisition (KPMG, 2022). Countries like the USA is attracting significant investment in Regtech because Goldman Sachs opened 9,000 branches in Bangalore, India to specialize in risk management whiles the regulators of financial institutions in Singapore have strengthen the use of AI technology to improve it governance structure and to help identify risks in the financial sector.

Similarly, regulatory sandbox is a safe environment with regulations for exploring and experimenting with new technologies and methods to bring innovations into the Fintech industry (Ringe & Ruof, 2018; World Bank, 2022). Regulatory sandbox seeks to promote competitions, attract new firms into the Fintech ecosystem and ensure that consumers benefit. Some countries that have started using regulatory sandbox are; UK adopted it in 2016, Hong Kong in 2016, Malaysia in 2016, Mauritius in 2017, Canada in 2017 and South Korea in 2019 (Ringe & Ruof, 2018). For a Fintech firm to be granted access to the sandbox, Fintech firms are required to meet certain entry conditions such as; does the Fintech firm protect consumers? If the firm satisfies the condition, then the firm must apply for a sandbox, go through screening and then granted the sandbox.

Artificial Intelligence (AI) and Robo advisors

Fintech firms have successfully adopted artificial intelligence (AI) to produce innovative goods and services. AI is the use of computer systems to perform human tasks such as thinking, learning, visual prescription and decision making to replicate the human brain. According to OECD (2019), AI is spreading quickly and is transforming the world of work, financial institutions as well as the society due to some characteristics it exhibits. AI shows some features like thinking, learning and self-improvement. Fintech firms have adopted and are applying AI to enhance service delivery in credit risk management and generating revenue. The Big technological giants like Alpha Go have adopted and implementing AI in on-line consulting, personal banking, asset management with little human involvement. It should be noted that technology is the main driver of AI. AI processes big data to generate high value insights. It has been argued that by the year 2027, 23 percent of China’s workforce will experience severe job losses in the financial sector due the adopting and the use of AI among Fintech firms (He & Guo, 2018 as cited in CCAF, 2020). It is imperative to note that AI technology will replace humans, and this should be an issue of great concern.

A robo advisor on the other hand, is an on-line tool that gives financial advice. A robo advisor is an online investment tool that advice customers on financial products and investment (Ringe & Ruof, 2018). World bank (2022) claims that in some advanced economy like the USA robo-advisors like Betterment and Wealthfront have expanded the financial inclusion through the provision of convenient investment advice to consumers; however, they pose significant risk like systematic risk, operational and cyber risks. This paper suggests that it is critical for robo-advisors to be properly regulated to ensure they don’t pose risks to consumers to lose confidence in the Fintech industry.



Figure 3 shows an overview of the services provided by Fintech firms. It is apparent from this figure that the services provided by Fintech firms are; Cryptocurrencies/blockchain, crowdfunding/peer-2-peer, mobile payments systems, regulation technology (Regtech) and regulatory sandbox as well as Artificial Intelligence (AI) and Robo advisors. From the figure it can be seen that Ghana can benefit from Fintech in several ways, it can attract investment into the country, expand the financial inclusion, enhance intermediary efficiency, promote technological innovation and enhance industrial productivity. In contrast, Fintech firms may pose significant risk to the Ghanian economy in the form of cyber security attack, data privacy, systematic risk and fraud.

Ghana’s Banking Sector

So far, this paper has focused on the Fintech industry in SSA and Ghana. The following part will discuss Ghana’s banking sector and if Fintech firms are posing a threat to their operations. Ghana currently boasts of 23 Universal Banks licensed by the Bank of Ghana (BoG, 2021). Generally, banks are institutions given a license to operate, their activities are regulated and supervised by a central bank to undertake banking services like deposits, lending, investment and provision of financial advice. Can it be suggested that the services provided by banks are at risk due to the fast rising and expanding Fintech firms in Ghana? Fintech firms provide fast, reliable and innovative services to their clients, meet customers’ expectations and clients see no reason why they should go to banks to join long queues to transact business. Have the services provided by Fintech firms leapfrogged banking services even though Fintech firms have not been issued a license to accept deposits by the Central Bank? The speed at which Fintech firms are expanding in Ghana looks promising but the question of whether they are posing a threat to Ghanaian banks, are consumers/customer protected and issues of cyber security should be of critical concern to stakeholders in Ghana’s Fintech industry.

This paper argues that banks are lagging in the use of AI to improve banking services and to meet customers’ needs. It is worth noting that though Fintech firms are providing digital and innovative services, their services cannot replace human decision at the banks. Ghanaian banks have made modest progress in going digital. In June 2022, the BoG together with the Ghana Interbank Payment and Settlement System (GhIPSS) introduced a novel mobile application called “GhanaPay” to merge banking services. The GhanaPay is a mobile money application that allows banks to offer banking and mobile money services on a digital platform. Though a good initiative by both the BoG and GhIPSS, it faced a lot of criticisms because mobile money platforms already perform these functions. Additionally, stakeholders in the financial sector further criticized the government to improve banking services and introduce innovative services like open banking as well as Know Your Customers (KYC) .



Table 3 is quite revealing in several ways. First, it explains the difference between fintech firms and banks. Whereas fintech firms are leveraging on technology (AI), machine learning and deep learning to enhance service delivery at a lower cost, banks in contrast, are leveraging on technology to improve existing banking products. It is imperative to state that though Fintech firms are driven mostly using technology and big data, human decisions cannot be ignored and replaced. This suggests why banks are also relevant in the Fintech ecosystem. This paper suggests that banks should consider forming a strong partnership or merging with Fintech firms to enable banks to harness the benefits of technology.

Conclusion

The focus of this paper has been to assess whether Fintech firms are posing a threat to Ghanaian banks and if they can augment banking services by offering a broad critical examination of the field. It has concentrated on the Fintech industry globally and in SSA, Ghana’s banking sector, as well as difference between Fintech firms and banks.

First, the paper identified Fintech as innovations in the financial sector as a result of the use of software and mobile applications to enhance services to customers. Fintech has transformed the financial sector globally and made transactions smarter and virtual. The most obvious finding to emerge from this study is that Fintech firms provide several services like cryptocurrency/blockchain, crowdfunding/P2P lending, mobile payment systems, Regulation Technology (Regtech) and Regulatory Sandbox, lastly, Artificial Intelligence (AI), Robo Advisors. The most interesting finding was that in Sub-Sahara Africa (SSA) countries like Kenya is ranked 31st globally, followed by South Africa 44th and Nigeria 57th.

Secondly, Ghana, currently ranked 71st globally in the recent 2021 GFRR can perform better if the government invests in IT infrastructure such as the provision of electricity in all part of the country, upgrade all cellular/mobile network technologies into 5th generation mobile network (5G) to accelerate internet connectivity as well as upgrading the payment systems to facilitate the clearing and settlement of financial transactions as done in Kenya to enable it perform better in the global Fintech rating index.
The study has gone some way towards enhancing our understanding between Fintech firms and banks as well as establishing whether Fintech firms are posing a threat to banks. Fintech firms uses technology (Mobile money app, blockchain network/cryptocurrency, P2P/Crowdfunding) to provide digital services to customers whereas banks are institutions with structures, given a license by it regulator to operate banking services like deposit, lending, investment and providing advisory services; Fintech are platform oriented that uses data, AI, machine learning whereas banks are account opening oriented; Fintech firms cannot accept deposits because they have not been issued a license whereas banks accept deposits; and lastly, whereas Fintech firms do not need human presence to transact business, banks need human presence to make decisions. This paper argues that Fintech firms are posing a threat to Ghanaian banks because of the services there are providing and suggests that banks should consider forming a strong partnership/merging with fintech firms to provide innovative services.

Policy Recommendations

The study has assessed how Fintech firms have transformed Ghana’s economy and how these firms are posing a threat to Ghanaian banks. It is necessary to propose some key recommendations to the Government, Bank of Ghana, Ministry of Finance, Ghana Association of Bankers, Security and Exchange Commission as well as key stakeholders in the financial sector to consider amending banking laws, establish the necessary IT infrastructure and harness the benefits of technology to ensure fintech firms spur economic growth.

Regulators of Fintech should consider reviewing policies on mobile payment system

Fintech firms are playing a key role in the financial inclusion process and regulators should consider reviewing mobile payment system policies to align with recent technological changes to meet customers' needs. To ensure an efficient financial inclusion system in Ghana, the Bank of Ghana should consider reviewing it regulatory policies to favor all banks, non-banks and mobile network operators to expand the provision of mobile money services as done in Kenya. The central bank of Kenya has adopted a functional approach of regulating mobile payment systems instead of an institutional approach. The functional approach has permitted all financial institutions (banks and non-banks) to undertake mobile payment. Since Ghana’s Fintech industry is dominated by mobile payment system, the Bank of Ghana should consider adopting Kenya’s model to ensure mobile payments services is extended to the unbanked population.

Government should consider investing in IT infrastructure and creating the enabling business environment to help close the gap

For Ghana to improve on it ranking in the global fintech rating report and to compete with countries like Kenya, South Africa and Nigeria, it is imperative for the government through the Ministry of Communication and Digitalization (MoCD) to consider investing in Ghana’s IT infrastructure such as upgrading mobile technology network; investing in fiber optic, providing reliable electricity across the country and upgrading payment systems infrastructure. The MoCD should engage stakeholders in the telecommunication industry on the best way to upgrade Ghana’s mobile network to 5th generational mobile network (5G) to improve the speed of internet connections and how to make internet affordable to the average Ghanaian. To ensure a reliable source of electricity across the country, it is critical for the government through the Ministry of Energy and Petroleum to collaborate with the Electricity Company of Ghana and relevant stakeholders to expand and provide electricity coverage to communities in the rural areas. In addition, the government through the MoCD should collaborate with Ghana Interbank Payment and Settlement System (GhIPSS) and other stakeholders to upgrade Ghana’s payment systems to facilitate the clearing and settlement of financial transactions on time as done in Kenya.

Banks should consider merging with Fintech firms and introduce innovative products

Fintech firms leverage on technology, data, artificial intelligence and machine learning to produce innovative products for their customers. Fintech firms are known for providing fast, reliable and convenient services to their customers at a reduced cost. These services have become a competitive advantage to Fintech firms and have won the confidence of customers. Ghanaian banks are encouraged to invest in technology, artificial intelligent and machine learning to produce innovative products. In addition, banks are encouraged to consider partnering or merging with Fintech firms to provide efficient services. In advanced economies there has been an increase in mergers and acquisitions between banks and Fintech firms. The merger and acquisitions have attracted 275 deals worth $36.2 billion. Also, since banks are given licenses to accept deposit and Fintech firms are not, banks merging with Fintech firms will expand their customer base.
Banks should consider recruiting professionals in IT, engineering, programming and data science analytics to be able to use data meaningfully to make investment decisions, detect fraud and manage credit risks.

Data literacy and cyber security should be intensified

Mobile money fraud has been on the rise in Ghana in recent times and to reduce the fraud among mobile money operators and individuals, it is important for the Bank of Ghana, Telecommunications industries and other stakeholders in the Fintech sector to intensify and educate citizens about ways to prevent mobile money fraud and to report any suspected fraud to the Ghana police service. The media should actively be involved in educating customers on mobile money fraud and ways to prevent customers' accounts from been hacked by fraudsters.
Again, Regulators of Fintech and the Data Protection Commission should consider educating citizens, stakeholders in the fintech industry on data protection and privacy as well as ensuring that Fintech firms comply with data protection laws