opinionBy Godfrey Ssebukulu
I have read recent media praises for mobile money transfers and congratulate Safaricom, MTN and Zain for implementing the service in the East African region. Safaricom has taken it to a higher level by handling international money transfers.
While this initiative is commendable, I regret that this model has cost our poor countries a fundamental revolution in evolution of an alternative payment system outside the formal banking and cash based systems.
The in-thing in retail banking today is installing ATMs with each bank going it alone to make the huge investment. In developed countries, ATM services are provided by a few companies which sell a common switch to all financial institutions.
ATMs provide a lot of benefits to clients such as 24-hour services and avoidance of long queues in banking halls, but they still have major setbacks. ATMs are very rigid as services can only be accessed at fixed locations. Withdrawals are limited in amount and number per day or week while sponsoring banks are actively involved in replenishment of cash and provision of 24-hour security.
ATMs are limited in the range of transactions they can handle. ATMs cannot be used to support Point of Sale (POS) transactions and clients cannot roam with the service.
The major obstacles to financial outreach in Uganda include the high tariff and non-tariff costs under the current banking model. Non-tariff costs include standing in long queues and restrictions on amounts to be taken out. For example, ATMs have limited operating hours, branch locations and people sometimes fear to deal with banks.
We have to accept the fact that traditional commercial bank-based payment systems have failed to support the emergence of all inclusive financial services. The public is yearning for a street-wise payment system, which requires us to look outside the current rigid banking structures that we want to impose on the low-end market. Banks and mobile phone companies cannot champion a revolution in payment systems that may render some of their cherished products obsolete.
A group of Ugandans formulated a concept and prototype for a mobile-phone based payment system in 2004, at the onset of the Me2U service by MTN and circulated this concept to policy makers over the years. One of the key recommendations under this concept, was to separate financial services from communication and data transfer services.
The concept envisaged that the central bank would not allow phone companies to provide money transfer services, but require specialised financial institutions to provide the mobile phone based money transfer service.
The specialised financial institution would have its own database and a mobile cash form, termed aircash for purposes of this article, which would be distributed and sold openly as is the case for airtime.
The specialised financial institution would adopt the client's mobile telephone number as the aircash account number and assign a unique and confidential PIN to each client. Personal details for purposes of know-your-customer compliance, would be captured at the time of registration for aircash services or at the time one acquired the line.
Activated aircash clients would load aircash the same way they load airtime and use this aircash to pay bills, transfer money to another telephone, transfer money to a savings account or pay off a bank loan and carry out other transactions.
The Government would pay salaries for the low-end staff and pensioners by sending aircash to their aircash accounts, saving them expensive journeys to their respective banks. Community or village phones would be used to send and receive money to and from rural areas. This model would allow for say client A of Warid to redeem aircash with client B of Orange on the street.
This model would also allow for clients to load aircash directly from their bank accounts. Supermarkets and fuel stations would enter the business of vending and redeeming aircash thus avoiding expensive journeys to the bank for cash.
Printing facilities could be put at strategic points, for example, supermarkets and fuel stations where aircash transaction slips and statements could be printed out at a small fee. For instance, if one paid school fees for student X to school Y aircash account, then one could walk into a neighbouring grocery store, print out a transaction slip to be presented to the school as evidence of payment. The school would validate the payment by checking its aircash statement online or against its printed statement.
The cost of aircash transactions would be a fraction of the transaction costs charged by banks, or those charged for money transfers by agencies such as Western Union.
The concept envisaged that Government and donors would pick interest in transforming the aircash platform into a public infrastructure and heavily subsidise its capital costs so as to keep the transaction costs very low.
Mobile phone companies would only charge for use of their networks and the charges would be in the range of those of a regular SMS.
By requiring that the service be provided by a specialised institution, clients would be cushioned from phone company pricing antiques, inter-network rivalry, ensure safety of public funds involved and focus mobile phone companies on their core business.
If we do not have a firewall between communication and financial services provision, the next challenge for the policy makers is going to be with handling the rapid conversion of telephone companies into fully fledged banks and the attendant regulatory issues.
My plea to policy makers is not to sit back, but to revisit the current implementation to open a window for development of a seamless and cheap alternative payment system.
Otherwise, we have lost a revolution in payment systems to the deep pocketed mobile phone companies.
The writer is a consultant on Innovative Finance