Mobile money systems offer the promise of financial inclusion for many people in low-income countries. In Ghana, policymakers are searching for ways to protect consumers making mobile money transactions, due to vendor misconduct.
Regulators from the Bank of Ghana have indicated that vendor misconduct is a significant concern, since rural households in Ghana usually do not have access to formal financial services such as banks, as in many low-income countries.
Let's delve into the dynamics of mobile money charges in Ghana, examining vendor misconduct, the impact of information transparency, and the implications of the Electronic Transaction Levy (E-Levy) on digital financial services.
Understanding M-Money Markets in Ghana
M-Money markets consist of three major players: service providers (which are partnerships between mobile network operators and commercial banks), vendors, and customers. M-money vendors are small businesses, who typically provide a variety of other goods and services, ranging from groceries to SIM card registration to photocopying. M-Money vendors offer account opening, cash-in, and cash-out services, as well as exchange cash for e-money.
In order for a vendor to enter the market, she must receive official training about the tariffs, commissions, and other services, which are set by the service provider. Any fiddling with these prices and fees is considered vendor misconduct.
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The average vendor earns a daily profit of GHS 23 (Ghanaian cedi) (US$4.49) on M-Money transactions. 95 percent of customers in this market are M-Money users. Unlike vendors, consumers in these markets receive little information about M-Money’s transaction tariffs and fees when they sign up.
Vendor Misconduct in M-Money Markets
In the context of M-Money markets in Ghana, vendor misconduct-defined as behavior that is unethical and indicative of fraud or wrongdoing-usually takes the form of overcharging customers. Research has found vendor misconduct rates as high as 32 percent in Uganda and 42 percent in Nigeria.
In theory, vendor concerns for their business’s reputation should deter such misconduct. In practice, vendors may find it difficult to establish their reputations in a market where customers do not know what the official prices are.
In surveys conducted by the research team, customers reported that around 59 percent of transactions are overcharged. Additional data from the research team, by contrast, found that vendors overcharge approximately 22 percent of transactions.
The Impact of Information Programs
Researchers evaluated the impact of providing vendors and consumers with information on official mobile money charges and options for recourse for consumers to report being overcharged. The evaluation took place in 130 markets with 130 vendors and 990 customers. The researchers randomized at the market level, meaning both vendors and customers within a geographical market received the same intervention.
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The researchers implemented the intervention by visiting each local market three times in a two-month window between August and December 2019.
The interventions included:
- Price Transparency: Researchers informed consumers about the true tariffs for common transactions. Vendors were informed that consumers were being given this information.
- Monitoring and Reporting: Researchers provided information about how to report vendor misconduct, including a toll-free number.
The 27-year-old Mobile Money(MoMo) vendor, PatriciaNimako, has been shot dead atKrofrom in Kumasi.
Alongside these interventions, the researchers also developed an auditing procedure to measure the true rate of misconduct in Ghanaian M-Money markets.
Measuring the Effectiveness of Information Programs
To measure whether the information programs were effective for customers, researchers measured four outcomes:
- Adoption and use of money services
- Savings within M-Money
- Whether customers experienced unexpected financial shocks for which they could not pay
- Poverty
These outcomes were measured via phone survey in May 2020, approximately five months after the intervention concluded.
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Impact on Vendor Misconduct
Across all three types of information programs, vendor misconduct decreased by an average of 21 percentage points (a 72 percent reduction from a base of 29 percent in the comparison group). Vendors who did not receive the information interventions, but who were located in the same market as vendors who did, reduced their misconduct by an average of 15 percentage points (a 55 percent decrease from a base of 28 percent in the comparison group).
Impact on Customers’ Usage and Welfare
Customers in markets that received information about misconduct increased the number of M-Money transactions they made each week. Furthermore, these customers increased their savings rate by 7.6 percentage points (an increase of 12.6 percent from a base savings rate of 60.5 percent in the comparison group). Customers in markets with anti-misconduct information were more likely to be able to financially remedy the unexpected shocks that they experienced.
Across outcomes related to uptake of M-Money services, the researchers found that the combination of price transparency and monitoring and reporting information had the greatest impact on customers.
Impact on Vendors’ Revenue
The information program also had positive results on vendors’ bottom line. Given that these vendors also cut back on overcharging customers, this increase in sales revenue did not translate to an increase in overall profits from M-Money services. However, vendors also saw an increase in other non-M-Money business services.
The interventions represented a cost-effective way to protect mobile money users: the researchers estimate the cost of the information program was GHS 20.8 (US$4) per person, and resulted in an increase of GHS 98.82 (US$19.30) in usage of financial services for customers. Conservative calculations suggest a 383 percent return on investment.
Taken together, these findings suggest that better information can increase efficiency in mobile money markets, benefiting both vendors and consumers. Researchers point to the importance of reputation: when consumers have access to information on official prices, they can identify dishonest vendors, report misconduct, and choose to transact with honest vendors.
The Introduction of the E-Levy
On 17th November 2021, the Minister for Finance announced during the presentation of the 2022 Budget Statement and Economic Policy of Government to the Parliament of Ghana, the introduction of an “Electronic Transaction Levy” or “E-Levy” of 1.75 percent on electronic transactions above GHs 100 (US$16) per day to take effect from 1st February 2022. The levy will be applied to mobile money payments, bank transfers, merchant payments, and inward remittances (MoF 2022 Budget Highlights). All charges will be borne by the sender except in the case of inward remittances where the charge will be borne by the recipient.
According to the Finance Minister, the country’s total digital transactions for 2020 were estimated to be over GH¢500 billion (about US$81 billion) compared to GH¢78 billion (US$12.5 billion) in 2016. This announcement has led to different reactions from the industry’s stakeholders, with some of them supporting the tax introduction as a way to collect public revenues while others criticizing such measure and its negative impact on digital payments and on the digitization journey that Ghana is championing.
Government Perspective
Ghana’s GDP contribution led by the Services sector, accounted for an average share of 51.9 percent first half of 2021 with the majority coming from the Information and Communication sub-sector, thus making a compelling case for Government to review that sector in its bid to generate more revenue.
On one side, the e-levy is expected to increase tax revenue by GHs 6.9 billion (US$1.1 billion) for the government to help reduce the budget deficit. In Ghana, government after government has struggled with implementing a comprehensive tax regime due to the large informal economy.
Today, mobile money has provided a platform for bringing the informal sector to formal financial services and that provides a channel to implement a tax regime that reaches almost all its adult citizens.
The potential revenue generated will be used to finance the ‘YouStart’ Initiative, road construction, develop the digital space of Ghana and particularly the development of basic education in the country amongst several others. For instance, the YouStart initiative would be a vehicle to support young entrepreneurs access capital, gain technical skills, receive training and mentoring to enable them start their own businesses which will go a long way to solve the nation's youth employment challenge.
Also, the government has guaranteed a waiver for transactions below GHs 100 a day (US$ 16) which will be exempted from the tax to ensure that vulnerable groups can still access digital transactions without any cost increase.
Industry Stakeholder Concerns
On the other side, there are concerns from industry stakeholders on the potential impact of the e-levy on the country’s current digitization agenda. Various stakeholders believe the e-levy will reverse all the gains made with Digital Financial Services, leading clients to revert to cash.
Government in its analysis of the impact of the e-levy predicts that 24 percent of users will drop of within the first couple of months but users will eventually go back to using digital services because the benefits outweigh the negatives. As a matter of comparison, the survey conducted by UNCDF on the impact of mobile money tax in Uganda, 38 percent of respondents used mobile money less after the introduction of the tax. Low-income users were unduly affected by the withdrawal tax, compared with higher income groups.
About 57.4 percent of high-income respondents started using agent banking as a direct result of the tax compared to 11.1 percent of low-income respondents who could not better access alternatives where similar tax is not applied.
The main concern for the introduction of the e-levy remains with regards to the users of digital payments that will need to bear the higher costs.
Potential Effects of the E-Levy
Let's explore the potential effects of the E-Levy on various aspects of digital transactions:
Potential effects on Peer to peer (P2P) transfers:
As of 2021, P2P transfers remain the highest transactions on mobile money platforms in Ghana and cost on average one percent per transaction (both for transfers and withdrawals) capped at GHs 10,000 (US$1,666). The e-levy foresees an additional 1.75 percent tax on the transaction value that will result in total transaction cost of 2.75 percent on transactions above GHs 100 with no upper limit determined yet. The tax will be applied to the sender when they initiate the transfer.
Initial reactions after the announcement of the e-levy led to some panic withdrawals by mobile money customers, an indication that the e-levy can cause a reduction in the values and volumes of transactions resulting in an increase in the use of cash.
Potential effects on merchant payments:
Merchant payments offer customers the opportunity to pay for products and services through mobile money, Point of Sale (POS), Quick Response (QR) Codes, rather than cash. In the case of MTN, MoMo Pay is gaining popularity gradually with its reduced transaction fee for the sender of 0.2 percent compared to the P2P transfer fee of one percent.
Merchants have a five or six digit code that customers can use to pay in place of a mobile number and are not charged to move money from their wallet to bank account. Point of Sale terminals offer clients a safer and easier way to pay for goods and services using Visa and MasterCard credit or debit card from any part of the world in either cedi or foreign currency. New models of POS accept mobile money wallet payments.
Currently, merchant POS commission ranges from Min 2 percent - 4 percent paid by the merchant and will be required to pay e-levy tax on their transactions.
Potential effects on bank transfers:
Bank to bank, transfer from bank to mobile money and vice versa will also be taxed except transfers between own accounts which will not be charged. Banks still process small to large value transactions such as salary payments, P2P, B2B, B2G payments and charge various fees depending on the type of transactions through various channels including the branch, mobile banking, internet banking, ATMs.
Potential effects on inward remittances:
Remittance is a significant source of external financing and a major contributor to national income. Many Ghanaian families depend on remittances from relations living abroad to cater for various expenses including education, health, rent, housekeeping, and utilities. Ghanaians in the diaspora also send money home to fund the construction of residential and/or commercial buildings. Remittances therefore contribute to the economic well-being of Ghanaians (Bank of Ghana. Guidelines for inward remittance services by payment service providers. Feb 2021).
In the recent past, remittances were sent mostly using informal channels given the prohibitive costs and difficult accessibility of formal channels; however new innovative channels have emerged and gave the opportunity to access international remittances in an easier, more efficient termination to wallet. Users can easily receive remittances from abroad in their wallet (at a transaction fee) and enjoy the financial services linked to the wallet, such as savings plan or insurance.
Taxing the recipient of remittance inflow could result in double charges for remittances funds that terminate straight into mobile money wallets.
Conclusion
Digital finance has played a huge role in financial inclusion by offering innovative financial products and services to underserved people. Despite the strides made by mobile money in Ghana, financial literacy levels are low and customers seem sensitive to the slightest price increments leading to more exclusion.
While an e-levy can be justified by the need for stable source of revenues, there is a potential risk of going back with the digital agenda and discouraging users from using formal platforms, with a final negative outcome for the revenue collection.
Initial assessment suggests that there is a clear trade-off between two of the government’s key agendas, namely effective domestic revenue mobilization and financial inclusion. UNCDF based on its market development approach, encourages stakeholders and industry players to explore tax policies that strike a balance between government priorities and the reactions the market might have.
Ghana has made tremendous progress in its digital agenda and all the efforts should capitalize on these successful results while giving the government the possibility to build a strong system of public finances.
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