OVERVIEW

A payment system is the entire matrix of institutional infrastructure arrangements and processes in a country for initiating and transferring monetary claims in the form of commercial and central bank liabilities. The concept covers the following:

• Payment instruments used to initiate and direct funds transfer
• Network arrangements for transacting and clearing payment instruments
• Institutional players in the system
• Market conventions and regulations
• Legal and regulatory framework

The stakeholders of Ghana's payment system are the central bank; the commercial banks, service providers and users of the system. The central bank occupies an important and unique position in the payment system. It is an overseer, operator and a participant of the payment system. The commercial banks participate in the system by making and receiving payments on their own behalf or their customers'. The service providers are the printers of payment instruments and telecommunication companies who provide the infrastructural arrangements for the payment system. Notwithstanding the unique role of each stakeholder, all of them are users of the payment system, including the banking public.

Ghana's payment system had improved a lot since 1997 when the MICR cheques were introduced, and continues to evolve to meet the developmental needs of the country. The current trend in Ghana's payment systems development is being driven by economic, financial, public policy factors as well as a growing local ICT industry and global trends in payment systems development. Consequently, over-reliance on cash as a means of payment is gradually giving way to a range of cashless and safe payment instruments. The cheque is the major inter-bank retail payment instrument which constitutes about 95% of the total retail payments both in terms of volume and value. The remaining 5% is contributed by the inter-bank credit transfer. High value funds transfer is made with the Ghana Inter-bank Settlement (GIS) system, which is a real time gross settlement system. At the retail level banks offer ATM and other debit card services. Telephone and internet banking services are available but in their use is not widespread.

The Legal Environment

Ghana's payment system is supported by various laws in line with the core principles for systematically important payment systems. The laws cover payment instruments, institutions, clearing and settlement systems, and include the following:

(a) Bank of Ghana Act, 2002 Act 612. The Act makes the BOG the authority responsible for payment and settlement systems in Ghana. This is stated among the functions of BOG as indicated below:

• the promotion, regulation and supervision of payment and settlement systems; and
• the facilitation of the clearing of cheques and other credit instruments for banking institutions.

(b) The Payment Systems Act, 2003, Act 668 is a sound legislation framework which further empowers the BOG to oversee and manage the payment systems as contained in the provisions below:

• to establish, operate, promote and supervise payment, funds transfer, clearing and settlement systems subject to such rules as it may publish; and
• to designate any other payment, funds transfer, clearing and settlement systems operating in the country, which the Bank considers to be in the public interest to supervise.

The Act also provides for the following:

• principles of transparency as applicable to payment systems;
• minimum obligations of participating financial institutions;
• principles required to achieve irrevocability and finality of payment;
• admissibility of electronic evidence in the law courts;
• dispute resolution; and
• other miscellaneous provisions covering disputes, offences, penalties and interpretations.

c) The Bills of Exchange Act, 1961, Act 55 (an adaptation of the English Bills of Exchange Act 1882) specifies how cheques are drawn accepted and paid. The clearing of cheques is further subject to the Rules to Govern Clearing House Operations. A draft bill known as the Bills and Cheques Bill now before Parliament, is expected to replace the Bills of Exchange Act when passed. The draft bill provides for electronic presentment of cheques and amends various sections of the Bills of Exchange Act to bring it in line with current business trends and practices. Other bills due for legislative consideration are the Anti-Money Laundering, Foreign Exchange and the Credit Reference Agency bills. These bills, when passed, will no doubt affect banking business including payments.

Besides the laws, there are rules and regulations governing payments. The Rules Governing the Operations of Clearinghouse provide an operational framework within which clearing and settlement is handled efficiently. The document covers among others; payment instruments standards, preparation of instruments for clearing, membership of clearinghouse and conduct of members, clearinghouse procedures and the management of clearinghouse.

Ghana Inter-bank Settlement (GIS) System's Terms and Conditions also provide the contractual basis for the operation of the large value funds transfer system.

LEGAL AND REGULATORY FRAMEWORK

Preamble for the Legal and Regulatory framework:

The Bank of Ghana shall have overall supervisory and regulatory authority in all matters relating to banking and non-banking financial business with the purpose to achieve a sound, efficient banking system in the interest of depositors and other customers of these institutions and the economy as a whole.

The regulatory and legal framework within which banks, non-bank financial institutions as well as forex bureaux operate in Ghana are the following:

• Bank of Ghana Act 2002, Act 612
• Banking Act, 2004 (Act 673)
• Financial Institutions (Non-Bank) Law 1993, PNDC Law 328
• Companies Code Act 179, 1963
• Bank of Ghana Notices /Directives / Circulars / Regulations

The Bank of Ghana is therefore, charged with the responsibility of ensuring that the financial system is stable to ensure that it serves as facilitator for wealth creation, economic growth and development.

The functions and responsibilities of the Central Bank as a Regulator are defined in Act 612 and Act 673 as follows:

• To regulate, supervise and direct the banking system and credit system to ensure the smooth operation of a safe and sound banking system
• To appoint an officer designated as the head of Banking Supervision Department, who shall be appointed by the Board
• To consider and propose reforms of the laws relating to banking business

Consequently, the Central Bank exercises its mandate to ensure that:

• depositors' funds are safe
• the solvency, good quality assets, adequate liquidity and profitability of banks are maintained;
• adherence to statutory and regulatory requirements is enforced;
• fair competition among banks
• the maintenance of an efficient payment system

In summary, the laws governing banking operations have provisions regarding licensing, withdrawal of license, and arrangement for examining and monitoring banks, powers, and duties as well as protection of the supervisor.

Finally, to enhance the legal and regulatory framework, the Bank of Ghana supervisory functions are designed to be consistent with the Basle Core Principles for Effective Banking Supervision.

INTERBANK CLEARING AND SETTLEMENT CIRCUITS

Ghana Interbank Settlement (GIS) System

The GIS is a real time gross settlement system for the handling of large value inter-bank payments in Ghana. The system was launched and became fully operational on 11th October 2002. It is a highly secured funds transfer system which uses the SWIFT FIN Y copy service for domestic interbank funds transfers. Settlement is effected gross and on real-time basis. Payments made are final and irrevocable. Currently, the GIS handle interbank funds transfer by banks on their own account and high value funds transfer on behalf of and for the credit of customers of banks.

The smooth flow of funds across a financial system depends on an efficient arrangement for the transmission, clearing and settlement of payments in a risk-free environment. Hence, the Bank of Ghana strives relentlessly to provide arrangements for the timely and secure settlement of high value domestic payments. The introduction of the GIS system is in line with the central bank's policy programme to provide an efficient and safe means of domestic funds transfer that would greatly reduce payment float and also enhance the implementation of monetary policy.

At the moment, participation in the GIS system is limited to licensed clearing banks in Ghana who are members of SWIFT. The system operates on every working day between 8.30 and 14.55 hours and ensures that payments are delivered and settled in real-time to the credit of the ultimate beneficiary on the same day. In the event when a customer transfer is received less than one hour before the initial cut-off, the customer will be given value within 30 minutes of start of GIS on the following working day. The system, which is owned and operated by the central bank, is a systematically important one and complies with the BIS core principles for payment systems.

Clearing Houses

The clearing of cheques and paper credit vouchers is handled by the eleven clearinghouses distributed throughout the country. The clearinghouses are jointly owned by the Bank of Ghana and the banks. The Bank of Ghana operates six of them whilst the remaining five are operated by commercial banks acting as agents of the Bank of

Ghana. The Accra Clearinghouse which handles approximately 73% of the total volume of instruments cleared nationwide is automated. The remaining ten clearinghouses are manual as the volumes of instruments handled are low.

Retail Debit Clearing System

Cheques and other paper-based debit instruments are the most widely used non-cash payment media in Ghana. These instruments include personal and corporate cheques, payment orders/ banker's drafts, debit notes, dividend and interest warrants, travellers cheques and commission vouchers. Cheques are the most dominant payment instrument. On regular basis, individuals used cheques to pay bills and businesses to make payments.

On the average, 18000 cheques with a value of ¢450 billion are cleared daily throughout the country.

The clearing cycle for cheques and other debit instruments depending on the proximity of the presenting bank to the clearinghouse is tabled below.

Retail Credit Clearing System

The inter-bank credit clearing system was introduced in July 2004 to complement the "debit pull" instruments. The credit clearing system, like the popular GIRO in Europe, is based on the "credit push" principle. It has the advantages of a shorter clearing cycle and less risk of fraud from tampering. Transaction volumes averages about 85 vouchers per day but are expected to increase as more people become aware of it. Currently credit transfer vouchers are cleared manually throughout the country since the volumes are relatively low for any efficient automation.

The clearing cycle for credit transfer vouchers, depending on the proximity of the presenting bank to the clearinghouse is tabled below.

BANKS DOMAIN ELECTRONIC FUNDS TRANSFER

Credit Cards

There are no locally issued credit cards in Ghana. However, popular international credit cards such as Visa, American Express and Barclaycard among others are accepted by the ATMs of the selected banks on the common ATM switch operated by Visa International for cash withdrawal. These are also accepted by some supermarkets and restaurants for the payment of goods and services.

Debit Cards

Pin-based debit cards that enable cardholders to make payments or withdraw cash from their deposit account at ATMs and EFTPOS terminals are available in Ghana and their use is growing. Some banks also issue signature based debit cards such as the Visa electron card but these are few.

Stored Value Cards

Stored value cards (known also as e-money) have been available in Ghana for sometime now. The Sika card and Mondex card are the better known. They are however not significant.

Automated Teller Machines (ATMs)

The first ATM was installed in Ghana by the Trust Bank in the 1980s. Since then, many banks have followed suit, installing ATMs for the convenience of their customers. However, the ATMs are operated on stand-alone basis and are therefore uneconomical, inconvenient to customers and inconsistent with the growing trend of ATM interoperability worldwide. In September 2005, a common ATM switch known as the Ghana National Net Settlement Service (GNNSS) was inaugurated to link together the disparate ATM machines of five major banks. Prior to the inauguration of the common switch, which is owned and operated by Visa International, banks operated ATMs that were, literally, not talking to ATMs of other banks. Consequently, ATM customers of a particular bank had to locate ATM machines of their bank to withdraw cash. The introduction of the common switch has greatly enhanced the efficiency of the ATM system since customers of banks on the system can withdraw cash from ATMs of member banks. The country is working towards a national ATM policy that would make it mandatory for ATMs nationwide, to be link together.

Electronic Funds Transfer-Cross Border Payments via SWIFT Transfers

All banks have SWIFT membership and use SWIFT FIN Messaging system in conjunction with traditional correspondent banking relationships to support international transfers.

Electronic Funds Transfer – Inward Remittances

Some banks and non-bank financial institutions provide inward remittance services for the public using proprietary and global mechanisms such as Western Union and Moneygram.

PAYMENT SYSTEM DEVELOPMENT PLANS

Plans are far advanced for the introduction of cheque codeline clearing and truncation system. This system would decentralise the capture of cheque MICR code-lines and cheque images at the point of receipt of the cheques by the banks. The banks will then sent the electronic files of the code-lines and the images to BOG for clearing and settlement. This will enable the truncation of cheques at the point of economic deposit and the use of cheque images for mandate verification. It is expected to free resources like labour and reduce costs generally for cheques clearing. New regulations and relevant laws would have to be enacted to support the new cheque clearing environment.

In addition to the above system, an Automated clearing House (ACH) would be introduced to handle bulk electronic credits and debits and thereby speed up the clearing of funds within the system. The SWIFT software messaging and communication systems will be harnessed to support cheque truncation and the ACH.

Furthermore, new policies are being drafted with respect to electronic banking, card-based payments (e-money and debit cards) and the oversight function responsibilities of the central bank thereof.