Globally, digital technologies are enabling the creation of cheaper, faster, safer and seamless tools to address the challenges of today’s fast-paced world. The deepening of digital payments/services into the financial ecosystem of economies has proven to be a critical enabler of receipts and payments of money in the most efficient and convenient ways. Digital payments are uniquely positioned to deliver efficient financial solutions while at the same time mitigating transactional risks for both providers and consumers. Beyond being an enabler at the micro level, digital payments have a telling impact on the larger economies of countries.
Per the calculations of the McKinsey Global Institute (2017), the widespread use of digital finance could boost annual GDP of all emerging economies by $3.7 trillion by 2025. To put that in perspective, that is 70 per cent of the size of present emerging economies, which stands at $5.3 trillion according to the MSCI Emerging Markets Index. Indeed, research has shown that digital payments can spur stronger economic growth by increasing financial inclusion, deepening financial intermediation, improving taxation, improving liquidity for the banking system, reducing red tapism and bureaucracy and increased efficiency of and access to payment, savings, insurance, investments and credit services.
Financial inclusion continues to be a major delimiter for advancing developing economies. Most people and small businesses in developing economies struggle to fully participate in the formal financial systems. Studies confirm broader access to and participation in the financial systems can reduce income inequality, boost job creation, accelerate consumption, increase investments in human capital, and directly help poor / under-privileged people manage lifestyle risks and absorb financial shocks. The extension of digital platforms and digital payments can also provide the speed, security, transparency, and cost efficiency needed to increase financial inclusion.
More critically, corruption and revenue leakage through tax evasion, misappropriation, etc which has longed dogged developing countries can be significantly reduced with the adoption of digital payment systems which can reduce the instances of corruption and revenue leakages. According to a World Bank Report on digital payments, governments in developing economies could collectively save at least $110 billion annually as digital payments reduce leakage in public expenditure and tax revenue. Out of this amount, about $70 billion would come from ensuring that government spending reaches its target. This effectively would increase public investment in critical areas such as education, infrastructure, and health care. In addition, governments could gain approximately $40 billion annually from ensuring that tax revenue that is collected makes its way into government coffers, money that could be used to fund other priorities.
Furthermore, digital payments could further enhance domestic revenue mobilization by reducing the size of the informal economy where businesses do not register, pay taxes, or comply with product- and labour market regulations. Digital payment systems within government’s operations can improve efficiency through saving cost and time in the day-to-day running of the government machinery. This way, even the cost of printing physical cash is significantly reduced by about 80 to 90 per cent. Governments that engage in social protection programmes can also improve the outcomes of their interventions through better targeting of recipients by shifting from cash to digital payments.
Having an effective digital payment system is however not a given. The onus lies on government to put in place deliberate measures / policies and an enabling infrastructure to ensure the many benefits of digital payments are realized. The first step towards achieving this is the building of a robust digital infrastructure that supports safe and low cost transactions. This includes widespread mobile connectivity and stable and affordable data complemented by a national identification system that provides a solid verification system for individuals and service providers to mitigate the identity risks involved in digital transactions.
The second thing government needs to do to support the improvement of a digital payment system is working unremittingly to ensure a dynamic and sustainable financial services market and business environment that encourages the efficient operations of telecoms operators, banks, financial institutions and fintechs. This should be completed with the offering of digital financial services that people prefer to existing alternatives which will offer superior lifestyle benefits to what they are used to.
It is within this context that the Bank of Ghana’s Payment Systems and Services Act (2018) and the Guidelines on Operations of Electronic Payment Channels, is a timely law. The purpose of the law is to provide a framework for the management of an efficient and secure transmission of electronic transactions across various payment channels. If implemented to the letter, the Act will, in many ways, ensure that the state accrues the most benefit from digital payments. Additional intentions by GhIPSS to facilitate real time electronics will hopefully manifest in multiple use cases to drive social progress in spurring the economy of emerging economies like Ghana’s.