INTRODUCTION
The Financial Technology (Fintech) industry has seen meteoric growth over the last two years in Ghana. In line with global trends, innovations democratizing traditional financial services on the back of technological advances continue to improve and automate financial service delivery, drive financial inclusion, and promote the delivery of varied new financial products and services.
The scope of these innovations extends to applications and technologies which enable mobile banking, online payments, investments, insurance, and remittances among others. The high adoption/acceptance and popularity of these digital financial services and products increasing their use over traditional banking services was significantly accelerated by the outbreak of the Covid-19 pandemic.
Driving these innovations are Fintech companies which are contributing significantly to the growth of the local economy, creating new jobs, and stimulating an entrepreneurial ecosystem. Also, they are making the provision of financial services more efficient, accessible, and user-friendly.
Nonetheless, Fintech is not without “headaches” for stakeholders particularly regulators as it presents new challenges for the performance of statutory functions of management, licensing, and supervision of the financial sector amidst the goal of ensuring a sound and stable financial market.
Therefore, it has become imperative to closely identify, monitor, and track the drivers of changes in the ecosystem and to adopt measures that leverage their full potential to promote efficiency, effectiveness, and synergy for the overall financial sector goals, products, and services.
Hence, the purpose of this write-up is to look at some top 10 trends which may influence the development and roll-out/deployment/implementation of Fintech innovations within the year which stakeholders including innovators, regulators, investors, and consumers must pay attention to and anticipate.
TRENDS TO WATCH IN 2023
- Digital Payment Services
The development and deployment of digital payment services – the use of mobile payment apps, electronic payment systems, mobile wallets, etc. without the use of physical cash has become the main offering of Ghana’s Fintech ecosystem. These payment innovations particularly mobile money (Momo) have enabled greater financial inclusion than any traditional financial service channels – despite their risks.
While we anticipate the enhancements in existing payment solutions to allow multiple payment options and the development of add-on services, the adoption of other modes of payment such as contactless payments like Apple Pay, Google Pay, Paypal, etc. will be aggressively deployed this year.
The trend will promote the expansion of existing payment solutions such as mobile banking, peer-to-peer payments, etc., and drive the development of new payment technologies.
Additionally, the rollout of the Pan-African Payment and Settlement System (PAPSS) which is providing financial market infrastructures for instant and secured cross-border payments offers new opportunities for the development of payment solutions that support merchant payments and cross-border transactions.
The surge in the associated risks of fraud, privacy, data protection, and user identification will promote the development of new technologies to support biometric identification, enhance KYC processes, fraud detection, and data protection.
Innovators particularly must pay attention to this trend and design tailored solutions to meet the growing demands and facilitate the growth of digital payment platforms.
- Internet Of Things (IoT)
The Internet of Things (IoT) simply refers to the collective invisible network of connected devices using the technology that permits communication between the devices and cloud services. This is possible due to the ongoing digital revolution which is witnessing the wide use of internet-enabled and connected devices by individuals and businesses.
As part of the revolution, everyday “things” (devices) connected to the internet are integrated and powered to allow seamless connectivity and access between multiple smart devices such as computers, cars, mobile devices, and home appliances among others.
Now, the innovation focus is shifting to making available for use at homes, workplaces, and in industries, IoT technology and devices which can automatically transmit data to and from the internet promoting the use of machines in activities of work and life.
IoT is enabling real-time collection and exchange of data leveraging smart devices, IoT applications, and a graphical user interface to permit several possible uses of internet functionalities today.
And as the IoT trend gains acceptability and use, we anticipate its application to influence the use of connected vehicles, connected homes, smart cities, and smart buildings. Therefore, all stakeholders must plan for its adoption and use vis-à-vis its embedded financial service offerings.
- Blockchain and Cryptocurrencies
According to a recent BBC report, the US regulators – the US Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have issued their first-ever joint warning to banks over the use of cryptocurrency due to its associated risks – potential fraud, legal uncertainty, and misleading disclosures by digital asset firms. This warning follows the recent collapse of the world’s second-largest cryptocurrency exchange platform FTX in November 2022.
Despite its current challenges, the surge in the trading, use, and acceptance of cryptocurrency as a medium of exchange, a store of value, and a unit of measure in direct competition with the traditional currencies of the world will not be slowing soon. The craze to use crypto digital assets such as cryptocurrencies (Bitcoin being the popular one), crypto commodities, and crypto tokens will continue and may gain further acceptability.
Additionally, Blockchain technology has become the primary technology platform for the development of these emerging financial tools and fintech products and services. It is mainly characterized by data invariability and decentralized operations which allow modifications by its users and such updates on mutual terms. The high dependence on data by Fintech companies makes the adoption of this data-driven technology very crucial for their operations and the design of their services.
Although blockchain technology is mostly associated with cryptocurrencies, its potency transcends digital currencies and can be adopted by both Fintech companies and regulators to secure the huge volumes of financial data generated and used by them.
During the year, regulators particularly must continue to closely monitor the use of these technologies as a means of providing the medium of exchange and strictly regulate same as it has the potential to completely change the structure of the financial market and decentralize the use of money or its equivalence.
- Artificial Intelligence (AI) and Machine Learning
Artificial Intelligence (AI) and Machine Learning (ML) are closely related and connected technologies. AI illustrates the capacity of a computer system to mimic human cognitive functions such as learning and problem-solving whilst Machine learning involves the process of using mathematical models of data to help a computer learn without direct instructions from humans with the possibility to continually learn and improve on its own based on its experience.
Following the increasing levels of automated processes and digitized transformations in financial services, Fintech companies are leveraging AI and Machine learning in handling “Big data” and predicting market trends. A key enhancement to this technology is the AI-powered chatbox and virtual assistants which have been pre-programmed to provide solutions to customers through data analysis of consumer patterns over a period. This provides a competitive advantage to service providers in cutting down operational costs while efficiently serving customers’ needs and making more accurate predictions.
It has been estimated by industry experts that banks and financial institutions will save 826 million working hours in 2023 by introducing automated customer support through AI in Fintech and stakeholders must explore the immediate deployment of AI and machine learning technologies to improve their operations, assist in the detection of fraud, predict risk among others.
- Software as a Service (SaaS)
Software as a Service (SaaS) is a way of delivering applications over the internet as a service. As a shift from the current business practice of buying, installing, and maintaining software on hardware devices, one can now simply access software through a web-based platform as an on-demand service – giving 3rd party software providers the responsibility to manage access, security, availability, and performance of the software.
It works through a cloud delivery model through applications which are hosted and made available to its users through web-enabled devices. With the need for high-volume data as well as software performance and backup increasing daily, it has become pertinent and needful for businesses to choose cloud-based providers.
The use of SaaS enables multitenant architecture, easy customization, and better access to provide low setup and infrastructure costs, scalability, and security among others.
Fintech companies can scale their services by providing a wide range of software tools on a single platform using cloud computing solutions at low setup and infrastructure costs. SaaS is one of the fastest-growing markets and has high user potential which businesses must explore.
- Remittances and Money Transfer Services
In a World Bank year-in-review report for the year 2022, remittance in sub-Sahara Africa grew to an estimated 5.2% ($53 billion) more than it did in the year 2021. Previously, the cross-border transfer of funds was only facilitated by traditional financial institutions and channels.
However, with the advent of Fintech innovations, digital money transfer products are being deployed to facilitate instant transfer of funds and their use is on the rise across the world. According to data provided by the World Bank Migration and Development Brief, Ghana maintained its position as the second largest recipient of remittance in Africa, having recorded a 4.4% growth in 2022 – representing a $4.7 billion inflow. Similarly, India set a world record by hitting $100 billion in remittances in the year 2022.
Digital money transfers and remittances are fast becoming the preferred customer choice for sending funds across borders because they are faster, cheaper, and more convenient. And with the worsening economic conditions across Africa, the reliance on the diaspora for economic support and funds will be intensified and the use of digital money transfer channels will become more imperative. It has been forecasted by industry experts that in the face of a growing fintech ecosystem, remittances into the country will grow to $5 billion this year.
Investments into remittance innovations – products and services will be amplified during the year, and it will become a significant Fintech product after digital payment solutions.
- Environmental, Social and Governance (ESG) Compliance
ESG considerations are not direct products or services of the Fintech industry. However, the emerging trend for businesses to comply with ESG frameworks in the bid to promote sustainable business practices, attract investments, etc. implies that Fintech companies will not be exceptions to such demands.
The global acknowledgment that ESG considerations must constitute part of the performance benchmark for companies is gaining local acceptance. One such local initiative is the launch in the year 2022 by the Ghana Stock Exchange of its Disclosure Guidance Manual to regulate ESG compliance by the listed companies.
Even though there are no streamlined guidelines for privately owned companies, it is expected that ESG will play a pivotal role in the designing of business models and solutions by Fintech companies as ESG compliance has become a focal area of consideration for investors. For a country like Ghana which relies majorly on foreign investments, Fintech companies should take matters on ESG compliance more seriously.
- Regulatory Trends
Fintech innovations are not unregulated innovations. Regulation of innovations will continue with strict supervisory activities by regulators largely due to the volatilities, risks, and consumer protection concerns of the industry. Existing regulations, guidelines, directives, and/or orders will experience reviews based on implementation insights and the direction of technological advances.
New innovations will be closely monitored, piloted under direct supervision, and rollout strategically to ensure financial stability and protection of the financial market. Policy frameworks to facilitate and promote innovations such as the rollout of a Regulatory and Innovation Sandbox in Ghana will continue as regulatory response and support.
Central bank initiatives such as the deployment of Central Bank Digital Currency (CBDC) (eCedi as the case in Ghana) will be aggressively pursued with the possible development of a comprehensive framework to regulate other digital assets. Fintech companies and other stakeholders must be prepared to engage and contribute to such initiatives.
Again, there is a growing need and preference for Regulatory Technology (RegTech) to enhance compliance by making available regulatory and compliance tools and services to Fintech companies on a universal platform. Industry players – regulators and Fintech companies can leverage this technology to facilitate the regulatory framework and align businesses along compliance streams.
- Talents – Skilled Professionals
The bedrock of the Fintech industry is its people – talents leading the development of innovations and changing the financial service delivery landscape. Without talents, all the existing innovations and anticipated ones will not be realities.
Nonetheless, the industry is bedeviled by the lack of requisite human resources and at present, the available limited human capital is being outsourced by foreign-based tech giants. There is a need for Fintech companies to attract and develop a new pool of talents to diversify their service offerings in the face of a growing market economy and an increase in mobile and internet connectivity. McKinsey & Company in their Fintech Report in Africa notes that by supporting the growth of training and skills development through informal technological education programs and training opportunities and focusing on recruiting and rewarding talent with strong IT and data capabilities, fintech and incumbents could develop the skills and expertise they need from local populations to help drive growth. Fintech companies must roll out strategies to help them recruit, train, and retain talent with the requisite skills for their growth.
Also, the regulators must invest in talent development programs that support their understanding of fintech innovations and offer internal human resources for the effective performance of their regulatory–supervisory functions.
- Smart Contracts
Undoubtedly, blockchain technology and smart contracts are fast becoming the future of transactions and record-keeping, as traditional paper-based contracts have proven over the years to be expensive, time-consuming, and susceptible to forgery in their adoption. As a new way of enforcing relationships and automating business processes, smart contracts will facilitate streamlining these digital tools and processes to increase efficiency by eliminating the conventional high-level decision-makers and stakeholders.
Also, its operationalization on the back of blockchain technology will allow for faster and more secure transactions. Industry players can leverage this technology in their transactional activities to promote secured transactions, efficiency, and reduced transactional costs.
CONCLUSION
The Fintech ecosystem has great potential in providing varying social and economic benefits to our country, as reflected by McKinsey & Co in their Fintech in Africa report, which names Ghana as one of the key markets in Africa to experience growth opportunities in financial services. The report indicated that Ghana would see a continuous 15% annual growth in revenue until the year 2025 to reach a staggering $18.6bn revenue from Fintech activities.
There is therefore the need to scale operations by embracing these emerging trends for sustainable growth and innovations in the financial market.
ABOUT THE AUTHORS
RICHARD NUNEKPEKU is the Managing Partner of SUSTINERI ATTORNEYS PRUC (www.sustineriattorneys.com) a client-centric law firm specializing in transactions, corporate legal services, dispute resolutions, and tax. He also heads the firm’s Start-ups, Fintech, and Innovations Practice division. He welcomes views on this article at richard@sustineriattorneys.com
CECILIA ANTWI KYEM is a Pupil at SUSTINERI ATTORNEYS PRUC. Cecilia has an interest in Financial Technology, Startups and SMEs, Commercial Transactions, Company Law, and Contracts, as well as ADR. She is reachable at cecilia@sustineriattorneys.com