Digital financial services (DFS) are transforming the world’s financial sectors. At the heart of this financial transformation is the rise of digital payments services through which nearly any individual or business can send or receive money in real time for almost any purpose and from nearly anywhere in the country—an inclusive payment ecosystem.
Across Sub-Saharan Africa, new success stories are playing out, yet little is understood about the approaches many countries in the region have taken to develop inclusive payment ecosystems. CGAP set out to examine pathways to inclusive payment ecosystems in two Sub-Saharan African countries, Tanzania and Ghana, to learn from their experiences. While this analysis could have highlighted the experiences of any number of countries that have succeeded in developing inclusive payment ecosystems, the Tanzanian and Ghanaian experiences hold unique and complementary lessons.
Tanzania. Tanzania has experienced explosive growth in the use of mobile money since the service was introduced in 2008. With several providers competing for market share, a range of new use cases have been introduced, including digital credit, savings, and bill payments. In 2017, nearly a decade after the first mobile money deployment launched, 60 percent of Tanzanians had used mobile money in the past 12 months.
Ghana. The use of mobile money did not have much uptake in Ghana in the early years of the first deployments. But after revising its approach to regulation and adopting new Agent and E-Money Issuer Guidelines in 2015, the country saw dramatic growth in the adoption of DFS. Even before the new regulations were adopted, mobile money had contributed to a 41 percent increase in financial inclusion. Since then, the Bank of Ghana reports that the number of active mobile money accounts has doubled, and use of these services continues to increase even as new players and products are entering the market.
Overall, these experiences hold important lessons for other countries that want to develop inclusive payments ecosystems. Looking across the two markets, there are both similarities and differences in the approaches taken by policy makers and providers, with significant implications for how DFS have evolved. These country experiences also underscore the time, effort, and patience required for DFS to succeed in an African context. While Tanzania and Ghana are considered among the most successful DFS markets not only in Sub-Saharan Africa, but globally, this success did not happen overnight. It took nearly a decade of work by policy makers, funders, and the private sector to drive uptake and use of DFS—work that is still in progress today.
This paper begins with case studies on the Tanzanian and Ghanaian experiences, recounting their journeys from the introduction of mobile money to today. The stories are told through the lens of five key components of inclusive payments ecosystems: regulatory approach, executive commitment and investment, competitive landscape, interconnected services, and compelling use cases.
Regulatory Approach. Across the two countries, DFS growth is strongly aided by policy makers that keep an open mind when approaching regulation, allowing new players to participate in the provision of financial services and providing space for experimentation. Successful risk mitigation strategies are proportionate to facilitate innovation without jeopardizing financial stability. Although effective regulation is very important, a supportive regulatory approach, including ongoing dialogue with industry, may be just as important. Strong leadership is key, and policy makers should engage with industry and develop a deep understanding of the space when crafting regulations.
Executive Commitment and Investment. Tanzania and Ghana’s experiences demonstrate that the investment required by providers to build extensive agent networks and drive customer awareness should not be underestimated. While achieving profitability can take several years, these investments set the foundation for a successful market by solving problems related to use cases, customer education, and agent recruitment/training. Senior executive buy-in and support are essential to prioritizing DFS and sustaining investment in the face of early losses.
Competitive Landscape. A review of Ghana’s pathway to DFS success (and borne out by those of other markets like Kenya and Zimbabwe) indicates that competition is not essential during early phases of market development, and a dominant provider with significant capital may be helpful to more quickly experience network effects and incentivize provider investment and innovation. But as markets mature, competition becomes increasingly important for driving customer value, while “coopetition” among mobile network operators and players like banks, microfinance institutions, aggregators, and FinTechs leads to a range of new use cases that ride on DFS rails.
Interconnected Services. Both Tanzania and Ghana have introduced mobile money interoperability, but how the push for interoperability played out in each market holds lessons for other countries working toward this goal. Although interoperability is important, it is best pursued in established markets where providers are looking for growth opportunities. Engagement with industry is important, and regulators should be cautious when mandating interoperability so as not to hinder early investment. Generally, market forces should guide when interoperability happens and who takes part, except in situations where abusive practices force regulators to intervene. Stakeholders should focus on governance and business rules, as well as the technical implementation of connections.
Compelling Use Cases. The ability to send and receive person-to-person payments was vital to driving initial adoption and use of DFS in Tanzania and Ghana, and they remain the most important use cases in both countries. Still, use cases like savings, credit, bill payments, merchant payments, and government payments are becoming more important as markets mature.