At a Kampala bank on Feb. 13, I met a client of MoneyGram money transfer services who identified himself as David. He was sending money to a friend in Asia via MoneyGram. In our brief interaction, David, like everyone else, had one complaint - the costs involved.
To send Shs 10 million, he was charged over Shs 500, 000 (5%), which he said was too much. But it's not just international transactions that are seen to be too expensive but even local mobile money transfers. "I use mobile money because it is convenient," says Joachim Mugisa, a mobile money subscriber, "but the charges definitely need to come down."
The massive popularity of the mobile money service, an electronic platform that enables mobile phones subscribers to send and receive money using their mobile phones, can be explained by the rapid mobile phone penetration, as opposed to commercial banks outreach, thus creating a fertile ground for mobile money to thrive. It is estimated that Uganda has about 3.5 million bank accounts compared to about 17 million mobile phone subscribers as of June 2012.
Moses Ihoza, the chairman of the Uganda Mobile Money Agents Association - the umbrella body for agents- said he understood the clients' concerns about the charges but argued that people would incur more costs and risks if they used alternative methods. "It is true that the charges are high but you need to recognise that the system is a lot more convenient," he said. He suggested that mobile money charges would remain high because the big players in the market see it as a cash cow.
To send Shs 1 million, the various networks would charge ranging from a low of Shs 700 on Orange Money, the newest entrant, to Shs a high of19,000 on Airtel Money. The cost of withdrawing Shs 1m is Shs 9,000 for each of the networks.
Warid, one of the cheapest on the market, would charge Shs 800, which Shailendra Naidu, the company's chief commercial officer, described as "absolutely fair." "We have no plans to adjust the charges. We want to be the market leader in this market," he said.
MTN was the trail blazer of mobile money in Uganda and has thus seen the biggest growth so far. Mazen Mroue, the CEO, says Shs 600 billion is transferred through its mobile money platform on a monthly basis.
The evolution of mobile money and international money transfer systems has in the recent years put pressure on commercial banks since huge volumes are currently transacted through the system.
A recent Bank of Uganda report says 19.2 million transfers were made through the mobile money platform in June 2012 alone, with a value of Shs 904 billion.
Other reports say the number of mobile money transactions since the inception of the platform is estimated at 84.7 million as of 2011, with a total value of Shs3.75 trillion wired through the platform. At the end of December last year, mobile commerce users in Uganda stood at 2.8 million, up from 1.8 million the year earlier.
This means that at least 18% of the total mobile phone subscribers are registered users of mobile money services. While most analysts would think the commercial banks are threatened by mobile money, most commercial banks are optimistic that their market share is not affected since they offer the service under a mutually beneficial partnership with telecoms. They say the mobile money platform is one of the ways of implementing the financial inclusion strategy for the lower end in Uganda and should not be seen as a threat to commercial banks.
For instance, telecoms use the established banks' point of representation like branches and ATMs to service agents of mobile networks and the banks likewise earn some commission for the services provided. This partly also contributes to the high costs as there are more entities to share the proceeds - ranging from the telecoms to agents and commercial banks.
Though the money transfer systems move billions of cash daily, there are no tight regulations to oversee the system. But even expecting the regulations to offer a respite by dictating the charges could be a far off dream. This is because the country's economy being a free one, means that there is no authority that will dictate the charges set by the players. Ideally, the forces of demand and supply are left to determine the direction of the charges and market growth.
The Bank of Uganda says as the mobile money market grows, BoU would continue to strengthen its oversight role over these services with particular attention paid to those banking institutions through which the funds are transferred. Reports say participating firms are required to have a robust risk management framework - a qualification that led to one prominent bank in Kampala being denied the opportunity to transact.
Indeed, Jacqueline Namara, the head of marketing at Stanbic Bank, suggested that mobile banking is a fast growing business and banks are working with mobile service providers to provide customers with a differentiated value offering. She said mobile phones are fast becoming ubiquitous and as such a great channel for people to interact with the world of financial services and banking in particular.
"There are also opportunities to realize additional revenue streams through collaborative partnerships among the players," she said. For some time, the UCC has reportedly been working with the Bank of Uganda to put in place a regulatory framework to govern the mobile money service and ensure that all the stakeholder interests and concerns are taken care of. How far the process has gone, how soon the framework will be ready and how far it will go in ensuring safety are that remain to be seen.