Friday, May 07
Breaking away from the pack in the next normal of retail banking

Breaking away from the pack in the next normal of retail banking

In the not too distant past, retail banks in Ghana were largely branch-centered (bank’s share of customer deposits was tightly connected to the size of its branch network). This model strictly required in-person visits to banking halls for the completion of bank transactions and this to a very large extent, least attracted the unbanked majority.

However, retail banks are now faced with a new force to reckon with, to either innovate, or risk being left behind. Customers and/or consumers are becoming more sophisticated and aggressively expect smart digital banking that is readily accessible and tailored to their immediate needs.

The government’s move to digitalize the economy as well as consumers’ desire for simple, fast and reliable digital technologies have mounted pressure on banks to improve customer experience, reevaluate branch expansions and better streamline their processes. The COVID-19 pandemic has made it even more necessary for banks to accelerate the existing technologies and explore the addition of new ones. compress image 1

Pre-pandemic times: Digital solutions & Innovations after the Banking Sector clean-up

Before COVID-19 surfaced, some banks were already breaking away from the pack with innovative solutions that met changing consumer expectations and facilitated banking service deliveries. Even so, some of these high-performing banks took advantage of the recent banking sector shake-up to streamline operations and lead the newly reconstituted market. The leverage one retail bank therefore had over another was the consumer-preferred digital services and innovative solutions in banking service deliveries.

A number of banking executives when asked about their views concerning the new banking reforms, especially regarding how they would use the new minimum capital, 75% of the banks mentioned that they would consider expanding their market through new digital product and channel development rather than brick and mortar branch expansion. For others, operational efficiency will result from introducing new technology-based products and channels.

Approximately 83% of the respondents said they expected to invest significantly in technology and create agile businesses over the medium term, which will be crucial to meet customer demands and grow profitability.

Accordingly, a number of banks indicated that innovation was growth-enabling, as such, they rated technology and digitally-focused companies (eg. Fintechs) as partners that could be tapped into to ensure bank growth.

There are quite a number of digital services which are commonly used in the retail banking that include: point of sale systems; partnering with Fintechs; integration of mobile money; electronic banking services.

The integration of mobile money in bank service deliveries was identified as having the most impact on banks. 80 percent of bank executives indicated that mobile money is having the greatest impact on bank’s growth.

Moreover, some 30 percent of banks interviewed noted that delays in integrating mobile money on their platforms cost them some retail customers. Also, 60 percent responded that electronic banking was having a positive impact on their businesses. Another 30 percent of bank CEOs said that point of sales systems had a relatively low impact on their banks whilst as low as 20 percent said that it had a high impact on their banks.

ONE GRaSource: PwC (2019). Banking reforms so far: Topmost issues on the minds of banks’ CEO’s

 COVID-19 Impact on Banking

In this same context, the emergence of the COVID-19 pandemic has deepened the need for quick transformation among the yet-to-explore banks as well as the little-transformed banks. As it stands now, a “wait and see” approach would not suffice any longer.

Indeed, it is with no doubt that, the COVID-19 pandemic has adversely impacted on the banking industry. According to a PwC banking survey, one in every two bank executives (50%) interviewed adduced that credit operations have been hard hit by the COVID-19 crisis.

The COVID-19 era led to the closure of some bank branches as a cost containment measure in the midst of the partial lockdown and also, customer demand patterns were disrupted. Banks had to move beyond their comfort zones to offer reduced interest rates, defer interest payments, and in some instances, defer principal payments of their clients. As anticipated, banks’ non-performing loans (NPLs) shot up and bank operating costs also increased beyond sustained levels.


“Considering the sudden disruption in economic activities and uncertainties that the country faced after the first two cases of COVID-19 were reported in Ghana, it is not surprising to note that 68.8 percent of banks in Ghana reported a fall in patronage of banking services while 18.8 percent recorded an overall increase. The increase, according to these banks was driven by association with customers whose businesses were boosted by the pandemic.

“The bank executives interviewed asserted that although banking services were identified as essential activities during the partial lockdown, many customers avoided the banking halls and resorted to other mediums of exchange and store of value,” asserts PwC.

According to data from the Bank of Ghana, already existing distribution channels of banks (such as ATM and POS) increased in number during the COVID-19 crisis. Between March 2020 and October 2020, the number of ATMs deployed increased from 2,159 payment terminals to 2,222 payment terminals respectively. Also, more Point of Sales Terminals were deployed, increasing from 9,381 terminals to 10, 278 terminals between the same periods.

Furthermore, the value of mobile money transactions between March and October increased from GHS33.8 billion to as high as GHS58 billion. Thus, the share of banks’ transactions via mobile banking distribution channel most likely increased accordingly.

In the same vein, the main delivery channel of banks which received most patronage during the COVID-19 crisis was mobile banking (56% of bank CEO’s affirmed), based on the PwC banking survey. This notwithstanding, other innovations in digital banking platforms such as Automated Teller Machines, internet banking and corporate electronic banking also remained beneficial.

two graSource: PwC (2020) The new normal: Banks’ response to COVID-19

 Beyond COVID-19: The Next Normal in Retail Banking

As earlier noted, the COVID-19 crisis has created a new course for banks: one that de-emphasizes the premium placed on putting up more branches to one that emphasizes maximizing banks’ capacities.

Banks that are going to lead the next normal of retail banking are those that keep on searching and thinking on creative solutions to make banking convenient, easier and affordable to the consumer. Such banks do not hold the view of “let’s wait and see,” as that would amount to losing out on the full benefits of innovating.

This is against the backdrop that, consumers’ quick adaptability to the COVID-19 restrictions that encouraged physical distancing and barred movements, will still be maintained as a new trend and adopted to encourage ‘less of in-person’ visits to banking halls.

Going forward, the fact that experts suggest that the impact of the pandemic would be felt in the economy for decades should also be infused in plans in order to better position banks to be adequately prepared for other shocks that may surface. Banks should be flexible by taking on a broader role of tracking consumer expectations and behavior changes so as to move in their direction and meet their needs as they arise.

Also, as banks identify innovative solutions and adopt the use of new digital services, they must be focused on bridging the information gap in terms of customers’ knowledge on the use of the service as well as strengthen cyber securities which may disrupt banks’ processes if not tackled.

Rising banking fraud – Who is to blame?

The 2019 banking industry report by Bank of Ghana on fraud activities in the banking sector indicates that fraud cases increased from 2,175 in 2018 to 2,295 in 2019, representing an increase of 5.5 per cent.

Although the increase in cases for the period under review was marginal compared to increases in previous years, there is still a cause for concern, especially when about 94 per cent of the reported cases involved staff of banks who were supposed to protect depositor’s money.

The Bank of Ghana reported that the marginal increase in the number of fraud cases reported may partly be attributed to the improved efforts by the Financial Stability Department to identify, monitor and to ensure compliance with reporting of fraud cases in the industry.

The Central Bank also noted that the various forms of advanced technologies adopted by financial institutions have made the banking sector more susceptible to various risks such as phishing, identity theft, card skimming, vishing, email fraud and more sophisticated types of cyber-crime which therefore required that banks put in more efforts to protect customers.

While banks have been quick to blame customers for incidences of fraud, citing reasons such as customers disclosing their PINs and certain vital information to third parties, customers have also in turn blamed banks for failing to protect their funds. Some have also blamed the regulator for failing to institute measures to protect customers from fraud.

But, speaking in an interview with Mr. Philip Danquah Debrah, Head of Business Operations, e-Crime Bureau, he said all the three stakeholders have a role to play as far as banking fraud is concerned.

BankingECRIME                                        Mr. Philip Danquah Debrah, Head of Business Operations, e-Crime Bureau

He said following several engagements with industry players, it had become evident that the issue of bank fraud was a major worry for all the players. He, however, commended the Financial Stability Department for taking charge of the situation.

He said the players in the industry engaged the Financial Stability Department regularly to present their industry perspective on some of these developments.

“it has become quite inconvenient for us because every now and then, we engage and speak about this same issue, but we don’t seem to be making enough progress on it. But specifically, with regards to the issue of financial crime, suppression of cash is classified as non-cyber related fraud and we need to do an assessment of why we are seeing an increase in this particular area.”

Rural bank cases

According to the report, Rural and Community Banks constituted 55 per cent of the total cases, while commercial banks and savings and loans institutions reported 23 per cent and 22 per cent of the cases respectively.

It is curious for one to want to know why a larger proportion of the reported cases occurred in the Rural and Community Banks as compared to the other categories of financial institutions.

To this, Mr. Debrah attributed it to the fact that the rural banks have failed to take advantage of technology in their operations and were still relying on individuals who move around to mobilize deposits in homes and businesses.

Graphical Representation of Fraud Cases Per Fraud Type Source:


 Now, if you analyze that carefully, it turns out that the rural banking sector have not really transformed into the digital domain in terms of taking advantage of technology to transform their banking procedures and the way they engage with their customers.


And so, once we have this teaser, it means that the rural banking sector has a lot more of deposit mobilizers; that is, people that the banks engage to go round businesses and individuals to mobilize cash as deposits.


So obviously when we have such a scenario, coupled with the poor monitoring and evaluation, we will easily find people absconding with such monies and that has been the business for such people.”


 Customers partly responsible

Mr. Debrah further stated that customers need to acknowledge their personal responsibilities in the growing fraud activities in the industry as some of them fail to make due diligence before giving out their monies to people who come to them as staff of the banks.

This is because their investigations have shown that individuals just commit monies to people without ensuring that they are getting the monies into their accounts.

This is compounded by the poor monitoring from the banking institutions which then create an opportunity for people to engage in such practices.

He was however quick to add that, this did not mean the clients should be punished but it calls for a shared responsibility.

“It has become a culture, a bank recruits somebody, they don’t do background check on the person and the banking sector is also such that people move from one bank to the other. There are no proper checks and the person goes ahead to engage in similar activities where the monies don’t even end up in the customer’s account. So when the person absconds, the bank cannot trace where the person lives to even establish contact for prosecution and that money goes down the drain. So clearly, it’s a mix of issues which we have to look at critically.”


Involvement of bank staff

The report indicated that 94 per cent of the fraud cases reported as suppression of cash and deposits were perpetrated by staff (either contract or permanent) of the financial institutions.

It is quit baffling as to what might force workers of financial institutions to engage in such fraudulent activities.

Mr. Debrah indicated that this was as a result of the fact that the system in the banking industry creates enough opportunities for workers to exploit.

“It’s a million of issues. Once you run a system that create opportunities, there is the incentive for fraud. It will be pre-mature to attribute this to low salaries. But every institution needs to strategize and find ways of flushing out bad people.”

He went on to say that, there was the need to critically access the risks that people were bringing into the institution before employing them.

He was of the view that constant monitoring and the right systems to report fraudulent activities, will help flush out such people in the banking sector.

Role of government

Looking at the important role played by a strong and resilient financial sector, including deposit-taking institutions in economic development, the government has a role to play in ensuring the safety of depositors at the various deposit-taking institutions.

Mr. Debrah believes the only thing government could do is to enforce the laws governing the financial industry.

He attributed the earlier banking crises that happened in the country to lack of enforcement and compliance of the banking regulations.

“I think it’s an issue of enforcement of the regulations. The government need to pick up such issues at the go so they can address them without delays. If this is done, it will make people confident to deposit their monies in these institutions, rather than watching it to result in the collapse of the banks. The lack of confidence makes people patronize the mobile money since they can easily get access to their money.”

BoG’s responsibility

Mr. Debrah said the BOG has the ultimate responsibility as a regulatory body of deposit-taking institutions.


The Bank of Ghana ultimately has the responsibility but I think that usually when it comes to the issue of cash suppression, it boils down to how well the rural banks are also able to transform their operations in the digital space. This will make operation and monitoring easier and apparently transaction becomes easier. The rural banks should see how best they can invest in technology so that they will be better positioned to handle depositors’ cash.”


According to him, the Bank of Ghana has given licenses to some third parties to roll up platforms that will support transactions of financial institutions. Therefore, institutions that do not have the financial capacity to install such systems can contact these licensed third parties to do that on their behalf.

“It takes money, it takes time and if they cannot develop these platforms themselves, they can get a reliable third party to provide that service on their behalf. But apart from that, you know that mobile money subscription has increased exponentially in the past 5 years and the rural banks can also take advantage of mobile money to enhance their banking systems.

“Mobile money can be used by the rural banks to limit the money suppression. There is the need for more education so that people can take advantage.”

Banks’ ISO certification

He also mentioned that although there was a limited number of banks with ISO certification which should be a worry for customers, there are different ways of managing risk that banks could explore.

ISO is a governance framework that makes institutions follow the right procedures. ISO is quite expensive and most of these institutions will not have the funds to implement it.

“Organizations need to do a monthly risk assessment to know their level of exposure especially with regards to digital platform risks and vulnerabilities. This will help track criminals that will like to take advantage of such vulnerabilities. So, it is a combination of factors and institutions need to do regular training of staffs, technical, medium-technical and non-technical people.”

Way forward

To help minimize, if not completely eliminate, the menace of banking industry fraud in Ghana, the finance expert recommended that; “The banks should take charge of protecting customer’s deposits but individuals should also take some responsibility to protect themselves.

“This is because what we have seen now is that financial institutions are recording fraud because people who use their services are vulnerable. Individuals must take precaution for whatever devices they are using for their financial transactions.


“You need to know the environment you find yourself and the kind of people you are dealing with so you don’t let yourself out. We always point fingers at the banks as if they are not doing anything but the individuals have a role to play. We need to also support the system as individuals.”

The Central Bank has also recommended that banks as well as deposit-taking institutions do proper vetting of prospective employees before they are finally employed.

Again, equal remuneration should be given to both permanent and contract staff in all financial and deposit-taking institutions, due diligence from bank customers when dealing with cheque transactions and customers are also encouraged to use efficient electronic payment methods.

Telecommunication players were also encouraged to strengthen their cyber-security systems as well as enhancing strong monitoring and evaluation system.

Renewing Confidence in Ghana’s Banking Sector by Adopting Transformational Strategies for Wholesale Banking Operation and Technology

Renewing Confidence in Ghana’s Banking Sector by Adopting Transformational Strategies for Wholesale Banking Operation and Technology

With Banks gaining progressive evolvement in Operation and Technology, there is the need to acknowledge the more tremendous value that can be ascertained in the industry.

The role of banks in providing appropriate financial channels and services for businesses and consumers is in the midst of nothing less than a fundamental transformation. At a time when banks are looking to significantly improve returns, it can sometimes seem that everything that can be done, has been done, particularly on the operations and technology side. But there are a lot more banks can do. The opportunities may be more complex, but they could drive the next step-change in productivity and efficiency.

Notable among wholesale banks worldwide is a significant progress in transforming operations and technology over the last few years. A general move to agile, and technology teams have been upskilled, and platforms rationalized. There is a record of witnessing improvement in operation teams in their partnership with the business; much clearer exception drivers; and a scale-up growth in the use of new technologies, such as robotic process automation and natural language processing. The results have been significant. For example, in capital markets, trade volumes rose by an average of ten percent a year from 2014 to 2017, while industry-wide cost levels declined. Overall, banks have now broadly settled on a global operating model across trading hubs, and on their nearshore and offshore locations.

However, the search for new opportunities for most operation and technology functions to achieve greater delivery speed and outcomes, increase efficiency, and ensure regulatory and compliance deadlines are met is never-ending. This reflects an urgent need for firms suffering from critical scale deficiency in the wholesale business, and are struggling to make the investments required to continue to increase automation levels, consolidate platforms, and transform to a more modern environment. In reality, some firms spend more than 25 percent of revenues on operations and technology, making profitability a challenge.

Other forms of downsides that almost always emerge from the discussion of wholesale banking are: the “golden source” of data; an absence of holistic financial resources; limited access to real-time pre-trade insights (such as compliance checks); Platform fragmentation across asset classes and geographies and; Lengthy, inefficient and cumbersome client onboarding/updating processes (for example, 90 percent of time spent collecting documents and only 10 percent analyzing data).

In Ghana, several reforms and emerging trends seen in the banking sector over the last couple of years, specifically; the capital requirement directive; the full implementation of the minimum capital directive; and issues relating to digitization have had the most impact on the banking business. The central Bank of Ghana (BoG) stated that these decisions were taken to “further develop, strengthen and modernize the financial sector to support the Government’s economic vision and transformational agenda”.

The subject of an increased minimum stated capital issued on 11th September 2017 from GHS120 million to GHS400 million, set off a rather charged conversation in bank boardrooms, the regulator’s and shareholders’ offices, bank Executive Committee meetings, bank personnel huddles, key customers and depositors’ homes. The conversation has carried on for a while on traditional media and social media platforms as well. Among the myriad of questions asked is; what are firms doing to get the most out of their spending and improve efficiency?

Gaining a holistic understanding of wholesale banks across the globe, Ghana inclusive, five thematic approaches to effective banking operations and technology remain manifest.

Capitalizing on Focus-Based Investments

This means making at-scale investments in the next generation of re-platforming, and automation in one or two product processes. Some firms have invested at-scale in multi-year trade-finance re-platforming. Some have targeted investing in cross-asset trading risk management. The most successful initiatives are always the ones linked closest to the strategy of the business.

According to the Banking Sector Report that was released in 2018 by Bank of Ghana (BoG), earnings from investments constituted the major source of income for the banks in June 2018. Approximately 83% of respondents of the 2019 Banking Survey mentioned that they expect to invest significantly in technology and create agile businesses over the medium term, which will be crucial to meet customer demands and grow profitability.

Tapping into the Growing Trends of New Technology

There are opportunities to be seized from taking a “greenfield” approach which indicates undertaking a project from a blank slate, with no restrictions or constraints imposed by previous work. This is particularly important for businesses where the bar for client experience has been raised dramatically. This means investing in new technology often in partnership with a fintech firm. Undoubtedly, many bank executives in Ghana have come to appreciate and view FinTechs as partners rather than competitors

Technological innovation or electronic delivery channels have contributed positively to the provision of banking services and the growth of the Ghanaian banking industry. These developments include new delivery channels for banking products and services such as Automated Teller Machines (ATMs), Telephone Banking, PC-Banking, and Electronic Funds Transfer at Point of Sale (EFTPoS). Areas, where this is equally prudent, are lending for small business clients, foreign exchange execution, and trade processing. New tech firms have built end-to-end stacks, in less than eighteen months, with small, high-caliber product and development teams.

Developing New Income Generating Operation and Technology from Existing Processes

Ghana’s Banking Survey report 2019 revealed that an appreciable number of banks had generated income specifically to secure the minimum capital through a hybrid of reserves and injection of fresh capital. Others admitted to having secured it through fresh capital injection only. In total, GHS1.5 billion was injected as fresh capital into the banking sector in 2018. Sources of fresh capital injection included equity from parent companies as well as funds from other private investors. Some banks also refrained from paying their shareholders dividends for the year to shore up their reserves to meet the GHS400 million requirement.

However, another great source for productivity gains that banks can adopt to also generate more income is the carving out and “mutualizing” processes. If a bank decides it does not have a differentiating business area or one that it is not able to invest in, success can come from working with private equity, information technology, and business process firms to carve out operations and technology. This can also mean transforming operations and technology into a new business to provide services to multiple wholesale banks. This works particularly well in areas like post-trade processing in capital markets, reference data management, and lending operations.

Combining New and Innovative Methods to Improve Customer Experience

Innovation is critical in this rapidly changing banking landscape. The customer of the future has a choice and is not afraid to exercise this choice, causing banks to invent new approaches to meet their demands. Banks are experimenting and scaling the use of a multi-lever approach to improve end-to-end client journeys, and processes. Firms have been able to improve throughput and productivity by more than 40 percent in product control and operations by merging client channel migration to electronic portals, automated workflows, optical character recognition, and natural language processing process improvements.

75% of Ghanaian bank executives, per the Banking Survey 2019 report, expressed to have already achieved profitable revenue growth by encouraging customers to migrate to electronic channels. In effect, traditional “brick and mortar” branches are expected to significantly reduce going forward, which is consistent with the banks' stated objective to migrate more customers to electronic channels.

Generating and Tailoring Daring Goals Towards High-Level Achievement

The final theme reflects the power of setting bold aspirations. For a few critical topics, firms are striving for a dramatic improvement. Examples are captured in the proportion of technology, staff engineers delivering codes, the proportion of workloads (applications and data) in modern infrastructure, and reductions in exception rates.

There are different implications for the different actors in this ecosystem. For wholesale banks, bolder actions are required to drive costs down. For business processing outsourcing and information technology outsourcing firms, platform partnerships will be critical to driving “mutualization.” For private equity firms, a deep understanding of transformation in this space (for example the ability to automate smaller, more specialist teams) will be crucial to making carve-outs successful.

The overall picture of wholesale banking has a huge value potential for the trading banks, and this can be found where they may least suspect—in their operations and technology teams. These aspects must be treated as businesses in themselves, and their professionals as “business people.” To get an idea of how big the opportunity is, careful consideration must be given to in sell-side capital markets alone where banks spend some huge sums on middle- and back-office operations and technology.

In light of structural changes and reforms in the wider financial services industry in Ghana, a renewed confidence in the sector following recapitalization, good corporate governance practices, sanitization of the non-bank financial institutions among others can only position the sector for growth and profitability in the coming years.

Banks begin to reel under COVID 19 scourge;...

Banks begin to reel under COVID 19 scourge;...

The COVID-19 pandemic has triggered a state of emergency around the world, with the global economy reeling under its scourge. The effects of this pandemic has been felt in every economy across the world and no sector of the economy has been spared the brunt of this once in a century pandemic. From the manufacturing sector to entertainment, sports, tourism etc., every sector of the Ghanaian economy have had to deal with the harsh effects of the COVID-19.

One sector of the economy which has been in the discussions during this period has been the financial sector, which is the fulcrum around which all economic activities in the country evolve and the life blood of every economy. With every sector being impacted in a different way, the banking sector is the latest to start showing signs of the negative impact of the virus.

Over the last couple of months, international firms like the KPMG, Deloitte, PwC, among others have outlined some of the implications the COVID-19 could have on the banking sector in Ghana and the latest report of the Monetary Policy Committee of the Bank of Ghana on developments in the sector in the first quarter of the year appears to be confirming the fears of these institutions. The report expressed concerns that banks in the country were beginning to feel the pinch of the pandemic, as all the key performance indicators of the sector contracted in the first quarter of 2020.

Under the period under review, assets grew by 3.5 percent which was lower than the 5.7 percent growth recorded in the first quarter of 2019. Deposits also grew by 0.7 percent, lower than the 6.9 percent growth in 2019, with credit growth also dipping due to the slowdown in demand for credit and tight credit stance by banks.

The central bank believes the slower growth rates recorded during the first quarter of 2020 reflects the emerging impact of the economic slowdown and rising risk aversion because of the COVID-19. On an annual basis, although the industry’s balance sheet growth performance was strong, the banks’ quarterly assessment point to a slowdown in business activity emanating from the COVID-19.

With borrowers facing job losses, slow-down in business activities, and declining profits, banks in the country were expected to start feeling the pinch of the pandemic. Hotels, Arline’s, pubs, nightclubs, tourist sites for instance have seen no business or cash flow since March, but, however have expenditures such as rents, utilities and salaries to pay. This has led to laying off of workers, with those remaining receiving half salaries. This clearly was expected to have an impact on banks deposits.

Due to the lockdown, many businesses were shut down, with others also operating at half capacity, a situation which affected their cash flows and ability to repay loans they have taken from banks. Many predicted this was going to have a severe impact on the non-performing loans ratio of banks and the report from the BoG confirmed this fears, as the non-performing loans ratio of the industry inched up in March 2020.

“This was mainly due to the decision of banks to slow credit extension while monitoring the impact of the COVID-19 pandemic on the economy. In the outlook, the evolving economic and operating environment could pose some challenges to the sector. Banks continue to project tightening of credit stance to protect their balance sheet although credit demand could pick up,” - BoG

Banks in the country as at May ending had granted loan repayment holidays to the tune of GH¢1.6 billion to customers and businesses who have been affected by the pandemic.

IMG 20200703 WA0002

Banks resilience to shocks

Over the years, banks have demonstrated their resilience to shocks and the COVID-19 pandemic represents one of the many shocks banks have had to deal with in the past. In the last two years for instance, Ghana’s banking industry witnessed some turbulence which led to some banks losing their licenses and just when things appeared to be stabilizing, the COVID struck.

The business of banking is managing risk so while COVID will present real first time risk to some sectors and institutions, banks are used to such risks due to the financial crisis of 2008 and several other financial meltdowns in the past, which means that banks should be in a better position to manage the risk emanating from the COVID-19. With banks always being at the forefront of managing risks, customers therefore do not need to panic because of this latest set-back as banks have some fundamental pillars on how to manage risks.  

Bank of Ghana 749x375 Frontview of the Bank of Ghana

The BoG, in its report assured the public that this was no cause for alarm as its latest stress tests suggested that banks were resilient and well positioned to withstand mild to moderate liquidity and credit shocks, which could emanate from the emerging operating environment.

“The lower-than-expected growth rates in the key performance indicators during quarter one reflect the challenging operating environment for the banking sector due to COVID-19. Notwithstanding this, the financial sector soundness indicators remained healthy. The latest stress tests conducted in April 2020 suggest that banks remain well positioned to withstand mild to moderate liquidity and credit shocks based on strong capital buffers and high liquidity positions. Capital Adequacy Ratio was well above the revised regulatory limit of 11.5 percent, liquidity remains strong, and efficiency indicators have improved,” - BoG

Key Financial Soundness Indicators (FSIs)IMG 20200703 WA0001

Policy measures by BoG

To help banks withstand the COVID-19 shocks, the central bank rolled out a couple of measures to support them. The Primary Reserve Requirement was reduced from 10 percent to 8 percent to provide more liquidity to banks to support critical sectors of the economy and the Capital Conservation Buffer (CCB) for banks of 3 percent was also reduced to 1.5 percent to enable the banks provide the needed financial support to the economy. This effectively reduced the Capital Adequacy Requirement from 13 percent to 11.5 percent.

The central bank as part of the measures also lowered the Monetary Policy Rate 150 basis points to 14.5 percent to enable banks to lend to customers at a reduced rate. The BoG in its report expressed confidence that these policy measures would help boost the sector’s credit operations and moderate emerging risks in the outlook.

” Measures by banks to control operational costs, minimize operational losses, and contain credit risk while supporting credit expansion to critical economic sectors will be crucial in balancing growth and stability in the sector,” the report noted.

Changes in retail banking

Although the pandemic has come with its own challenges to banks, it has not all been gloom as we have also seen some positives in terms of banks customer’s adoption to their digital channels. Prior to the COVID-19, banks were faced with the challenge of getting their customers to adopt their online channels. With the pandemic forcing banks to close some of its branches and some staff, having to work from home, customers who were slow in adopting the digital channels of banks were left with no other option than to use these channels.

Forbes reported that at its peak in April, the COVID-19 pandemic resulted in an estimated 3 billion people worldwide being in lockdown, which meant that businesses and consumers had little choice but to use online services. This has led to an increase in the usage of banks digital channels within this period. While this may come as good news to the banks as it reduces their cost of operation, the question that has been on the minds of most people have been whether the pandemic has changed the banking business for good or whether customers would return to the brick and mortar structures to transact their businesses post COVID.

Speaking at a Webinar, the President of the Chartered Institute of Bankers, Mrs. Patricia Sappor, said banks could no longer go back to their old ways of operating since the needs and psyche of customers had changed significantly as a result of the COVID-19.

She said investing in large and expensive edifices to accommodate employees could be curtailed as banks have found ways for workers to work more remotely and digitally.

“This will reduce the operating costs of banks since lesser expenses on utilities and depreciation are incurred.”

The pandemic has also given the government’s initiative of moving the economy to a cashless society a shot in the arm, as people are now increasingly moving towards digital payments. Mrs. Sappor said this presented banks with the opportunity to aggressively drive the digital agenda whilst encouraging customers to jump onto the digital train using channels like Mobile Apps, USSDs, Internet Banking, and ATMs to facilitate transactions.

Scrap the Cedis – Adopt the US Dollar

Scrap the Cedis – Adopt the US Dollar

Osagyefo Dr. Kwame Nkrumah will cry uncontrollably after reading this epistle. I have read that he was beside

THE TECH ATTACK– How Banks Can React to Avoid Losing Huge Margins

A look at strategic options and tactics for banks in the event of a real incursion by big tech firms into financial services.

Banks have been under pressure from tech firms for some time. However, there’s a strong chance that this pressure will intensify as big tech firms increasingly leverage their strong consumer franchises and digital expertise to compete with banks. As such, there are needs to consider the strategies and tactics available to banks, and how they might emerge stronger and more profitable from the big tech incursion.

Big techs have not yet taken significant market share outside China in financial services, and tend to avoid regulated markets; and when they do look to enter banking, they usually start by partnering with banks.

But big tech firms are making headway in ways that might not be measurable in terms of traditional market share. Consider big tech’s approach as disintermediation rather than direct entry into the regulated domain of financial services, or of their focus on the most capital-light and digitizable areas of business that are closest to their core. Take Amazon’s foray into small business lending, Apple’s entry into payments and consumer finance, or Facebook’s announced launch of Libra, a cryptocurrency.

It is imperative that banks respond to this potential now, as once big tech firms achieve scale it will become near impossible to compete on price, or with their ability to offer a distinctive client experience that builds consumer loyalty and trust. Ultimately, if not resisted, the tech attack will destroy the financial services industry’s margins—by taking some themselves and returning the rest to consumers.

So how to react? Banks can use a 2x2 matrix (Exhibit) to structure possible responses depending on the likelihood of required action and its incremental cost.

Exh. 1

No brainers are actions that are necessary but do not incur significant incremental costs. Banks should make a detailed scenario analysis—establishing the value at risk, understanding the motivations and capabilities of potential attackers (both global and domestic), and positing potential strategies for a counter-attack. An effective tool here is a “black hat” strategy exercise that helps banks understand what an attacking player would do; or traditional war-gaming. Banks should also consider engaging with regulators early on, and educating their board members about the threat so that they are prepared for possibly radical and costly action. They should also closely monitor the market for emerging “star” companies in their target client segments and track partnerships that other financial firms are pursuing. 

Banks should also continue to forge ahead with the efforts they are—or should be—making to stay ahead of the competition. For example, digitizing processes to ensure a great customer experience and to keep costs down will also reinforce a bank’s defenses at the most common attack points for tech firms. The same goes for advances in digital marketing, which reduce the cost of acquisition and improve consumer engagement. Banks should also continue to work on building customer loyalty through loyalty programs and explore how to turn their local presence and customer-specific knowledge into bulwarks against tech incursion.

Insurance policies are actions with relatively low incremental costs that address risks with small but non-zero probability of occurrence. They can be thought of as ways to future-proof the business.

Raising barriers is an example. Monoline financial services firms should consider diversifying into adjacent financial businesses—these areas don’t have to be profitable for the banks if they address a broader set of customer needs; for example, expanding from consumer finance to retail banking. By bundling products in a simple, transparent way, banks can make an attacker’s niche proposition look inferior. Banks with a narrow product set may need to find new partners to make this tactic work, expanding to, say, insurance or wealth management, or adding features like analytics, personal financial management, or peer-to-peer payments. Banks should also consider experimenting with new technology; for example, advanced payments schemes.

Another way to secure a stronger position in the market is through pre-emptive partnerships; for example, teaming up with local players (e.g., to share data to the extent permitted by regulation), with government (e.g., to provide payments infrastructure), or with large e-commerce players (e.g., to provide point-of-sale lending or joint loyalty programs). Making such partnerships work at scale would likely require the skill to build APIs related to some of the bank’s core functions, and having a dedicated partnership unit/venture fund.

A proactive regulatory stance also fits with this strategy. Regulators are interested in supporting a healthy, profitable, banking sector. Issues to address in this context could include: how opening banking to big tech might impact industry profitability in the long term; what kind of regulatory framework would ensure a sustainable competitive landscape (e.g., degree of open banking; requirements for data protection and on-shore data storage).

Big pre-emptive bets are the most important of the higher-cost actions, but success can be elusive. For a bank, the most critical decision is whether and how to significantly raise up your local game in payments, focusing on value-added services to merchants, and pushing hard to deliver new technology in payments, such as biometrics. Moves of this kind are costly, but could secure access for a bank to a unique and valuable set of customer data. Banks could also enter the data management space, as Australia’s Data Republic did by building an industry-wide data aggregation infrastructure. Or banks could focus on a client-data-protection agenda; in this latter case, banks can justifiably claim superior capabilities than their tech counterparts. 

Another type of a big bet would be to build an ecosystem—either focusing narrowly (like Hungary’s OTP in B2B and real estate) or pursuing a multitude of directions, like Ping An and Sberbank. Or simply scale linkups with tech companies themselves. For example, tech firms often lack non-digital distribution. In addition to risk management capabilities and a balance sheet, a bank can provide the physical network to complement an attacker’s digital channels, as well as contributing knowledge of local markets and customers. These capabilities are valuable to tech firms, for client onboarding, customer engagement, troubleshooting, and logistics. Consider Amazon’s venture into physical retail in India.

Finally, Plan Bs are actions banks should consider to deal with “nuclear scenarios”—only to be used as last resorts. Here’s one: temporarily slashing margins to the point where an attacker is dissuaded by the potential cost of investment. If a bank drops fees on payments to close to zero, it will be very difficult to create incentives for merchants to switch to a different provider. Banks can supplement this move with a carrot-and-stick approach—offering generous rewards, or disincentives, to prevent clients switching to new entrants. Other Plan B options could include:

  • Becoming the back-office of choice for the tech entrants into financial space—which would require a distinctive cost position; risk, cyber-security and operational capabilities; and a superior technological infrastructure
  • Building a digital bank adjacent to the main franchise that would match the customer experience and positioning of tech attackers; the risk of cannibalization may be outweighed by the overall defense of market share.

Size is a clear advantage in all four scenarios. Players with dominant market shares can invest to keep up with techs’ innovation, and have a better chance of fending off attack, especially where regulators provide something of a barrier to entry. Medium-size players have some options; they may be able to build a niche offering, or partner with tech giants. It is the smaller players who are most exposed. From the shareholder perspective, divesting such an asset—especially in challenged markets—might be the right strategy. If market exit is out of question, smaller banks can mount defenses based on local knowledge, or try to grow their client base through partnerships. But in the longer run their prospects are grim.

For banks of all sizes, the first imperative is to understand the threat of big tech incursion, and the new competitive landscape, build an objective assessment of your own capabilities and market strengths, and develop a plan of response. It is important for banks to take action on all these fronts if they wish to maintain their position in the face of a big tech move into financial services.

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