CHAPTER ONE

GENERAL INTRODUCTION

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).

1.2.  Statement Of The Problem

Financial institutions have been a driving agent of economic growth and economic development for centuries. It is for this reason that over the past century many governments have been involved in developing their finance sector. In Cameroon the ministry of finance has promoted business development in several ways and businesses have been able to benefit from the wide range of financial services found in the country which are offered by commercial banks, micro-finance institutions, insurance firms among others.

Today the use of modern payment instruments such as electronic money, cryptocurrencies, credit cards and their correlative services such as Mobile Money have played a significant role in achieving financial inclusion and the productivity of SMEs; which is a driving factor for economic growth as shown in prior research conducted by Frank Sylvio Gahapa Talom and Robertson Khan Tengeh (2019).

The use of financial technologies has all the more been facilitated in Cameroon by the adoption of laws such as Regulation No 04/18 / CEMAC / UMAC / COBAC relating to Payment Services in the CEMAC Sub region of 21st December 2018, which gives the possibility for FINTECH start-ups to offer certain services which were limited to banking institutions, for example, the distribution of electronic money. As such, a lot of new companies can be seen investing in financial payment services. Some FINTECH companies in Cameroon include; SEED, FinTech Ltd, ZuumPay, Guanxi Invest, Diool, Zito Financial, WazaPay (monkeypesa 2021).

Financial technologies and the accelerated digitalization of economies present a promising avenue for mobilizing finance for inclusive and effective intermediation while securing a sustained path to economic development and economic growth.

Blockchain-based technologies, advances in artificial intelligence, and other rapidly advancing innovations can help enhance financial efficiency while promoting financial inclusion. Advances in application programming interfaces (APIs) have allowed financial services to become embedded in financial platforms that now see strong consumer engagement. (Sopnendu Mohanty, Fintech to Enable Development, Investment, Financial Inclusion, and Sustainability; 2020).

In the last two decades, Financial Technologies (FINTECH) have revolutionized the way people and businesses carry out their daily life activities worldwide. From the development of ATM machines, to the creation of internet and mobile banking applications, to creation of virtual currencies and advancement of cashless payments financial technologies are becoming more and more a part of our everyday life. Due to the pervasive nature of financial technologies, it has become important to study the effect of FINTECH on many important aspects of human life and variables such as economic growth. In the late half of the year 2019, the world faced a global crisis; the COVID 19 pandemic, many businesses and transactions were put to a hold and most of the world was in quarantine.

It meant an ever-increasing need for commerce, education and finance to go even more digital. In Cameroon, the COVID-19 pandemic lead to enormous loss in State revenue because of the slowdown in economic activity and reduction in tax revenue. According to MINFI data, the evaluation of losses of tax income, customs duties or levies and taxes on oil imports because of the COVID-19 is some 768 billion FCFA in 2020. Due to this loss it is even more important for the Cameroon economy to determine a way to develop its digital economy and the use of digital financial services.

Previous research had regarded FINTECH development as a driving factor for growth in developed economies. Much of this research focused on advanced countries since it is relatively difficult to talk about FINTECH in developing economies as their finance and technology sectors are somewhat underdeveloped and their method of operation could be considered backwards. African societies are still considered ignorant on the use of technologies as most of them cannot afford.

This is even more true to its application in finance. Several theoretical and empirical works have been conducted to investigate FINTECH’s impact on economic growth. The literature shows that many theories recognize the role FINTECH plays in speeding up economic growth but empirical studies on this relationship have mostly been done in developed western and euro-zone economies. Literature review shows that compared to developed economies of the western world, research on FINTECH in developing countries is still a relatively new concept and needs further exploration and discussions to produce a clear idea on the effect of FINTECH on economic growth in these regions.

Over the last two decades, Cameroonian banks and financial institutions have integrated the use of online and mobile platforms in their operations and functioning. Presently many major businesses are engaging in creating internet and social media presence and as a result of this, more and more transactions are beginning to go virtual and promoting transactions which do not require physical cash.

The use of digital platforms to fulfill financial obligations has greatly facilitated and lowered business transactions cost. This study considers relevant information with regards to the use of Financial Technologies in the Payment and settlement sector and how it affects Economic Growth, something that prior research has not considered in the Cameroonian Economy, or might have considered in fragments such as mobile money alone.

This work brings to light the state of affairs financial technologies, laying emphasis on those used for payment and settlement in Cameroon. It presents the different financial technologies used in Cameroon. In line with this, the purpose of this study is to investigate the effect of Financial Technologies on the economic growth of Cameroon and to answer the following research questions;

1.3.   Main research question

Does the application of Financial Technologies in payment and settlement have a positive effect on the economic growth of Cameroon?

1.3.1  Specific research question

1. What has been the number of ATM subscribers in Cameroon over the last decade?
2. What has been the number of people who use digital payment in Cameroon over the last decade?
3. What has been the number of mobile money subscribers in Cameroon over the last decade?

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