GHANA: E-Zwich Becoming A Colossal Waste of Resources?

In a move largely described as “bold” by industry watchers, the Ghana Interbank Payment and Settlement System (GhIPPS)—the operators of the national electronics payments switch—will now allow customers access to their traditional bank accounts via electronic cards (e-zwich). 7 Ghanaian banks constitute the first set of participants in the scheme.

the tendency of governments to take on complex programs without sufficient risk analysis...can prove, as e-zwich has shown, very costly for all of us by leading to the wanton dissipation of scarce resources. (IMANI, GHANA)

When e-zwich was formerly launched in 2008, the then Governor of the Bank of Ghana, Dr. Paul Acquah, described it as having been primarily designed “...for promoting branchless banking and financial inclusion.”

The new attempts by GhIPPS to make e-zwich look more and more like a typical debit card are perhaps a sign of acknowledgment that things are not going to plan.
A few weeks ago, an Accra-based radio station, Joy FM, carried a news report in which several merchants in the Accra area complained of poor patronage of e-zwich point of sale terminals (POS) and the resulting inconvenience of their having to service and power-up machines that were effectively useless.

Many complaints have also come from users of the card about frequent false negatives during the biometric authentication sessions that are required to establish their identity before they can use the card. A false negative means that the terminal, after reading their fingerprints, returns a message that they are not the true owners of the card.

Some merchants, on the other hand, complain about an inability to synchronise their sales transactions with the e-zwich mainframe at the end of the day. While e-zwich POSs come with the functionality to transmit data using a GPRS modem in instances where an internet connection is unavailable, this auxiliary connectivity function sometimes fail compelling the cancellation of transactions mid-way.

Given the scope of its ambition it was always expected that some technical difficulties would be encountered, and that these will ease with the passage of time and with increasing adoption and use. Even the most proven systems require a period of time to attain stability.

However, at the outset of implementation, the policymakers and the managers of the e-zwich program made systemic strategic mistakes that considerably weakened its prospects at the get-go. The biggest of these mistakes was to not separate the electronic switch and supporting gateways, the biometric identification backbone, and the consumer smartcard and POS terminal services from one another.
The electronic switch could have been the province of the Bank of Ghana, which could have also managed the biometric backbone on behalf of the public until the NIA (National Identification Authority) was ready to assume that function.

The consumer smartcard part of the e-zwich program, which is represented by the smartcards themselves and the point of sales terminals, should definitely have been left in the hands of the many private-sector developers of electronic payment solutions already working in Ghana. The reason why e-zwich’s managers made those disastrous decisions was because they were the sole carriers of risk in the scheme.
Whether e-zwich liked it or not it was engaged in 3 simultaneous marketing battles. Its most compelling proposition was branchless banking. Being able to use one card to access multiple bank accounts at ATM, branch, and POS levels clearly wins any day. But this is obviously an urban and semi-urban middle-class proposition, with convenience and efficiency being the main draw. Improving financial efficiency is a perfectly commendable objective for a national bank. This should have been e-zwich’s priority.

The second battle was one e-zwich might have avoided. By entering the debit space they found themselves in direct competition with VISA, which, for being international and an early market entrant, was unlikely to be dislodged by e-zwich’s murky proposition.

The most complex of e-zwich’s 3-tier consumer smartcard finance operation is the financial inclusion bit. We are used to hearing that only 20% of our population is banked. Misinterpreting this statistic can lead to flawed policy reasoning, as happened with e-zwich. The middle and upper classes control the country’s wealth and they are generally well-banked. This may not speak well of the distribution of resources across the population but it is the reality.

One therefore has to be very cautious when using notions of financial inclusion. Had e-zwich focussed first on remittances it might have made different strategic decisions, but as it turned out its focus was much too broad, much too murky. At any rate is it the case that “poor”, illiterate, rural dwellers have cash hoarded up that can be “deposit-mobilised” into the banking system?
It is not clear that the key financial need in these parts of Ghana is a convenient mechanism for utilising cash. It seems rather that the key need there is the cash itself.
The problem as we see it is that there is a tendency for government agencies and ministries in our part of the world to be overambitious and hubristic about their capabilities, to build complex wholly novel systems from scratch, and to deny the vital place of entrepreneurship and market forces in the creation and sustainability of genuinely transformative socio-economic programs.

The tendency of governments to take on complex programs without sufficient risk analysis, and the bureaucratic unease of government-paid managers about dealing with the private sector, can prove, as e-zwich has shown, very costly for all of us by leading to the wanton dissipation of scarce resources.

Hopefully, the e-zwich saga offers government of Ghana the opportunity to start doing things differently.

Courtesy of IMANI Center for Policy & Education and AfricanLiberty.org