Soon, customers in Ghana will earn interest on their mobile money wallets – an important provision that regulators in more and more markets are including in their regulations to provide different ways to maximize customer benefit. How did Ghana do it differently than Tanzania, the first country where a mobile money service paid out interest?
The Bank of Tanzania allowed mobile network operators (MNOs) significant influence in determining how customers benefited from the income MNOs earned on float accounts held by banks. The Bank of Ghana, however, has taken a more hands-on, prescriptive approach, by issuing mandates that MNOs had to react to rather than asking MNOs to make proposals.
Between 2008 and 2015, the Ghanaian regulations were silent on whether banks should pay interest on e-money float accounts and, if they did, who should benefit from the interest. The mobile money providers unsuccessfully argued early on that they should be allowed to use it. As a result, the banks by default enjoyed the entire profits from on-lending the free funds at healthy margins. For the first several years, the amounts were small and garnered little attention. But by the time new e-Money Issuer (EMI) guidelines were issued in July 2015, the total float in the system approached US$100 million, making it a matter too significant to ignore.
After deliberations, the Bank of Ghana mandated that banks pay interest on float accounts similar to that on other account types. It was also decided that EMIs must pass through not less than 80% of the interest to their end customers. According to Elly Ohene-Adu, the recently retired Head of Banking at the Bank of Ghana who oversaw the drafting and promulgation of the guidelines, these mandates were central to the bank’s mission of ensuring a win-win-win outcome in which customers, EMIs and banks all benefited.
In this construct, banks would continue to benefit from a relatively stable, large and growing deposit balance, even though they now had to pay interest on it; providers would benefit from retaining up to 20% of the interest earned (which the Bank of Ghana encouraged them to use to drive customer acquisition); and customers would benefit by earning at least 80% of the interest. This was meant to provide an incentive for all players to support the growth of mobile money.
After the EMI guidelines were issued, banks and EMIs were free to begin direct negotiations on the rate of interest to be paid. And according to Ohene-Adu, the Bank of Ghana’s expectation was that these discussions would be concluded swiftly and without contention. But this could not have been further from the case.
Once the EMIs and banks began discussions on the rate of interest to be paid, banks immediately revolted. They argued that the rates requested by the providers – which used the treasury bill rate of approximately 20% as a reference point – were unworkable. The banks further maintained that paying any interest at all would increase their cost of funds and give rise to unfavorable knock-on effects by forcing them to curtail lending and/or increase their interest rates on credit. Finally, some banks voiced concern about customers switching their deposits from bank accounts to e-wallets as they sought better rates and as banks typically paid very low interest on small-value savings accounts. What ensued was a very public and often contentious debate in the industry, with the Bank of Ghana in the middle, and no interest being paid.
According to Ohene-Adu, the regulator then decided to intervene and the management determined that, given the transactional nature of mobile money and the requirement for the float to be held in liquid assets, any account holding such funds should be classified as a current account. The Bank of Ghana then instructed banks to pay interest at their own prevailing rate for current accounts. Given that current accounts generally earn 0% interest, it was then the EMIs’ turn to be in an uproar. The EMIs were quick to point out that customers would essentially receive 80% of nothing and that the banks were the only ones benefiting.
The Bank of Ghana instructed banks to report how much interest they were paying on current accounts. Surprisingly, banks reported a range of 1.5%-7%. This range was ultimately set as the floor and ceiling in individual negotiations between EMIs and banks. Since then, the banks, as per the Bank of Ghana’s instructions, have begun paying interest into restricted, interest-only accounts, though these funds are not currently being distributed to EMIs nor to customers.
According to the Bank of Ghana, this delay is because the various EMIs are now in the process of presenting their proposals explaining the systems they will use to pass through interest, as well as the mechanisms for interest-related dispute resolution.
There is no doubt that the central banks in Tanzania and Ghana have taken very different approaches to their supervision of mobile money and to the issue of interest payments, even if the end result might be very similar. The Bank of Tanzania has mandated that the interest must benefit customers, but remains flexible on how and allows industry to come up with ideas. The Bank of Ghana went the other way, stipulating in detail that interest must be paid out, the range of interest rate payable and who may partake in what share of it.
Studying the outcomes of the two approaches should provide useful insights on how regulators should approach the question of interest on digital finance accounts. Whichever approach, there is cause for optimism on the role that interest payments can play on driving the rapid uptake of mobile money.