Abstract

This study investigates the impact of Financial Technologies (FINTECH) on economic growth in Cameroon, particularly focusing on payment and settlement systems. Despite Cameroon being a significant country in Sub-Saharan Africa, its economic growth has been inconsistent. The introduction of modern financial instruments, such as mobile banking and electronic payments, is assessed for their role in enhancing financial inclusion and operational efficiency.

The research identifies key trends in FINTECH adoption, including the rise of digital wallets and mobile money, and explores their implications on Gross Domestic Product (GDP) and per capita income. Using both qualitative and quantitative methodologies, the study aims to fill the knowledge gap regarding FINTECH’s specific contributions to Cameroon’s economic landscape.

It addresses research questions about ATM usage, digital payment adoption, and mobile money subscriptions over the past decade. Findings indicate a positive correlation between FINTECH implementation and economic growth, suggesting that increased access to financial services can stimulate economic activity. This research contributes valuable insights for policymakers and financial institutions aiming to leverage technology for sustainable development in Cameroon.

 CHAPTER ONE

GENERAL INTRODUCTION

This chapter focuses on the background to the study, the statement of the problem, the research questions, objectives of the study, research methodology, significance of the study, and overall presentation of the organization of the study. By presenting historical evolution of the main concepts under investigation, the reader gains better understanding of the study and its significance.

1.1.      Background Of The Study

Despite the fact that Cameroon is considered one of the major Countries in Sub-Sahara Africa, there is still a lot of discourse on the nature of Cameroon’s growth and it is still considered a developing country. Since the late 1990’s, growth experienced a decline, some argue that it was due to the devaluation of the currency and drop in profits from trade. Over the last decade, Economic Growth of Cameroon, proxied by Gross Domestic Product (GDP) has been fluctuating. Data from World Development Indicators shows that GDP has steadily increased steadily from 32.64 in 2016 to 39.02 in 2021. Regardless of this increase, the GDP Growth Rate steadily declined from 0.3% in 2019 to -3.89% in 2021.

This could be accounted for in part by the Covid-19 pandemic. Likewise, GDP per capita has dropped from 1,507 in 2019 to 1,380 in 2021. GDP per capita growth rate dropped from 7.68% to -1.76% in 2019, then to -0.54% in 2020 and -7.9 in 2021. Several studies have been carried out to investigate what factors and aspects of the economy have an effect of economic growth such as military expenditure, Health, Infrastructure, Finance and Financial Technologies among others.

Technology has played a vital role in the financial sector since the industrial revolution and the later half of the 19th century which in turn had a positive effect on Economic Growth. In 1950, one of the first ever financial technologies, the Credit Card, was introduced to ease the burden of carrying cash, followed by the use of automated teller machines (ATMs) to replace bank tellers and branches in the 1960s. The advent of the ATM machine and the hand-held calculator in 1967 was fundamental to a longer-term process of digitization and digital transformation of finance. Then, in the 1970s, electronic stock trading began on exchange trading floors and the Internet and e-commerce business models shined in the 1990s. In the early 21st century, once again, FINTECH has completely changed the role of the financial services.

Digitalization of financial services, emergence of mobile and E-banking, systems of non-cash payments, mobile systems of online payment – all this and so much more, has laid down the guidelines for further development of financial technologies (Kireyeva, A. A., Kredina, A., Vasa, L., & Satpayeva, Z. T.; 2021).The term “FINTECH” refers to the technologies that can be used in financial sector to help traditional companies form innovative solutions such as mobile internet, big data, cloud computing, and the blockchain. Nowadays, there are several FINTECH innovations launched and they have changed the ways of trading and banking, for instance, digital wallets, payment apps, mobile banking, mobile trading, robo-advisor sites, and peer-to-peer lending sites (Chatchai Khiewngamdee; Ho-don Yan,2019).

In 2007, with the release of the first ever smart-phones and the creation of M-Pesa; mobile money in Kenya, it was a turning point in the world of finance. It meant a fast pace increase of financial inclusion worldwide. With the coming of these technologies, it meant there could be a change in the way business was carried out as well as the way transactions were effectuated.

Over the past two decades, the global banking and finance sector has witnessed groundbreaking innovations fostered by technological developments. There has been an upsurge in financial technologies which have developed modern payment services. Nowadays, payment instruments such as cryptocurrencies, electronic money and online banking among others are common among Cameroonian youths. These modern instrument and systems of payment make it possible for someone to settle financial obligations using a phone from the comfort of his home. They have indeed altered the traditional way of doing business.

These modern payment services are usually offered by non-banking institutions who are already gaining popularity and finding themselves more and more involved with almost all types of financial institutions in the Cameroonian economy. Coming to the case of Cameroon we can see that the Central Bank, BEAC has not been left out of this world-wide trend of making computer technology a built-in part of its operations.

BEAC uses SYSTAC/SYGMA platforms as a network that could better manage details relating to funds transfer and other financial details of member states. E-commerce is growing at a fast pace and more of the millennial generation is getting acquainted to the use of online platforms to effectuate transactions. For example; student is beginning to pay school fee using mobile money and virtual banking platforms.

The impact of the computer revolution is now evident in virtually all countries, Cameroon, inclusive. This revolution is likely to continue even in years to come, as technology is a vital factor for innovation and change in all areas of the human endeavour. With the rapid development of the world wide web (internet) starting in the mid-1990s, the “digital economy” has experienced an immense increase and perpetually changed the way businesses carry out operations and how consumers engage in transactions with businesses. Computers and other ICT devices are becoming part of everyday life. Businesses, individuals, firms, organizations and even governments depend on digital and internet technologies more than people could have imagined even two decades ago.

Due to the pervasive influence of digital technologies on economic and social interactions, governments, businesses and people are compelled to adapt. Although the pace of digital transformation varies from country to country, all countries are being affected including Cameroon and the financial sector of the Cameroonian economy.

There are several topics that link Financial Technologies and economic growth, most of them considering Financial Technologies as a form of Financial innovation. The Finance-Growth theory developed by Bagehot in the 1870s explains that Financial development such as the advent of Financial Technologies could boost economic activity and increase overall productivity through “demand following’’ and “supply leading’’ effect, since more and more of the population would have access to Financial services such as savings, lending and payment. Schumpeter in his theory of economic development, argued that innovation is the key driver to economic growth.

According to him such a new combination can be in form of new means of production, new ways of producing existing goods, new market development, innovation in raw material and sectorial alteration. Schumpeter sees banks and other financial institutions as an intermediary between innovators and owners of capital. Thus, once the bank issues loans, it authorizes the implementation of the new combination which in turn will spur economic growth and benefit the entire society Financial Technologies ease access to Financial Services rendered by banks which are crucial for Economic Growth as the Theory suggest Also, the Macroeconomic Growth theory establishes a positive relationship between Financial innovations such as Financial Technologies and Economic Growth.

Financial technologies have continued to shape many business activities all over the world. Financial technologies have paved the path for a better means of business transactions. Financial technologies accelerate the productivity of capital, reduce transaction costs and hence stimulate economic growth through financial innovation. Financial innovation refers to the process of creating new financial or investment products, services or processes.

According to Tahir et.al (2018) financial innovation refers to the introduction of new financial instruments in financial intuitions and markets through new technologies. It includes process, product and institutional innovation. In modern economy, the mode of payment plays a key role in the smooth functioning of economic activities. There is no doubt to the fact that financial technologies have created an efficient system of payments which provides instantaneous settlement of financial transactions and expedites the exchange of goods and services in a prompt, protected, and reliable manner.

According to Qamruzzaman and Jianguo (2017), financial innovation promotes economic growth through financial inclusion and the facilitation of international exchange of goods and services. Payments platforms such as Automated Teller Machines (ATMs), internet banking, electronic payment system, mobile banking have emerged from the technological development of the finance sector.

These payments systems have resulted in reduction of transaction costs. Financial technology platforms allow individuals and businesses to make and receive payments from anywhere in the world. There is an increase in the number of financial technology innovations enterprises that are driving banking services in Cameroon. This has made life and economic activities easier for Cameroonians. Financial technologies have substantially ameliorated the finance sector of Cameroon and has promoted financial inclusion. Some scientific studies show the connection between economic growth and non-cash payments (Alvarez & Lippi, 2009; Mieseigha & Ogbodo, 2013; Bashir & Madhavaiah,2014; Grzywińska-Rąpca & Grzybowska-Brzezińska,2015; Aliha et al., 2020).

Prior research shows a positive relationship between economic growth and financial inclusion (Ross Levine, 2005). While there exists the evidence from research carried out in some advanced countries that the adoption of financial technologies tends to have a positive effect on economic growth, not much has been done to assess this statement in many African developing countries especially Cameroon.

The weak and ambiguous empirical evidence of the impact of Financial Technologies in Cameroon especially is due to the lack of high-quality microscopic and macroscopic data sets and mainly because most of the population is ignorant to the fact that Digital finance is already a part of their day to day activities. Ekote Nelson Nnoko and Yuji Maeda (2018), Conducted research to investigate the impact FinTech would have on the financial service industry and economic development in Japan and sub Saharan Africa, especially through its payment and settlement services. The results from their study show that the evolution of the payment landscape would continue, displacing the usage of credit cards and adopting the use of crypto-currency, stored in digital wallets.

Also, on the settlement platform, clearing houses and intermediary banks would be displaced by a distributed ledger system leveraging on cryptographic protocols, being capable of near real-time settlement, which the transaction costs would be very low. Frank Sylvio and Robertson Khan conducted a study in 2019 to investigate the effect of digital payment services on the performance of small and medium sized enterprises which are often excluded from the traditional banking system. The results showed a reduction in cost, boost in productivity and increase in revenue. Despite the fact that this study considers an aspect of Financial Technologies, it does not link it to Economic Growth.

There may be valid reasons why the effect of FINTECH on growth in emerging countries like Cameroon is different than in developed countries. On the one hand, developing and emerging countries might be lacking the necessary requirement to sustain the FINTECH sector; these requirements include areas such as research, its regulatory aspects and general trust of the public which is largely due to the fact that the government is yet to give its word with regards to this. Major questions such as; would the Central Bank of Cameroon legalize the use of Crypto currency are still a major concern to many individuals, businesses and investors.

The advent of mobile phone technologies has paved a new path for business. For example, a wide range of the youth population in Cameroon today are involved in Facebook marketing, WhatsApp business, Instagram business promotions and internet service providers such as MTN, ORANGE, YUP are beginning to partner with more and more banks such as SGBC, NFC BANK, BICEC and even micro finance institutions like EXPRESS UNION, UNICS Plc among others.

The use of financial technologies has substantially lowered transaction cost, and reduced the time needed to effectuate transaction, this is one of the reasons why many businesses are adopting the use of financial technologies. FINTECH includes a huge range of products, technologies and business models from cashless payments to virtual currencies. Regardless of the various definitions and the broad use of FINTECH in different areas of human endeavor, it is worth mentioning that the development of FINTECH sector comes across as necessary for economic growth and the development of countries especially developing countries, something this study seek to explore.

In Cameroon, the increasing use of technology has had an impact on the business economy over the past two decades. Businesses, especially banks, now have modern software to facilitate and safeguard information and transactions. The banking sector was predominantly manual with the use of a few computers. This made the task of managing funds and funds transfer a little bit toilsome, and as a result business transaction involving banks and other financial institutions were somewhat difficult. Today, it is impossible to step into banks and other financial institutions and not find a computer or some computer related technology like internet connection to facilitate transactions.

Banks and financial institutions in Cameroon use FTP servers and some variation of modern software like BIP ORACLE, FLEXTRA, SAP, QUICK BOOK, etc. Due to the fast pace at which funds transfer, hence business transactions are effectuated, it would naturally be expected that business activities experience a massive boom.

Following the widespread engagement of more and more businesses in e-commerce, the use of smart-phones by majority of the population and the fact that majority of the population is un-banked (without bank accounts), traditional financial institutions have been compelled to change their business models in order to offer competitive financial products which can at least match these modern and unorthodox systems of payment, it is for this reason that it is particularly important to see investigate how Financial Technologies could contribute to Economic Growth.

1.2. Statement Of The Problem