The Observer (Kampala)

Uganda: Mobile Money Gives Banks a Run

To Richard Mwebaze, the message was loud, clear and a welcome relief from those dreaded bank queues. The head teacher at one of his children's school said parents were now free to pay school fees by mobile money.

But one question still bothered Mwebaze: how would the school differentiate the money he paid for his daughter and some other parents' because many parents paid in instalments.

"The headmaster told me that I just write my daughter's name and class in the 'reason box'. I successfully paid her fees for the whole of this year. I will not bother with banks again," Mwebaze said.

More and more Ugandans are beginning to embrace mobile money. The service has shifted from its traditional platform of sending and receiving to facilitating transactions. From paying tithe at some churches, to fuelling at a pump station, anything is almost possible with mobile money.

Over the phone, one can pay for their insurance policy. MTN LifeCare, a health insurance policy provided in conjunction with Jubilee Insurance and AON insurance, is available for mobile money subscribers.

You can even pay for food using mobile money. Chillies Take Away restaurant in Kamwokya has a mobile money number that anyone can send money to.

"Ever since I bought my Startimes decoder, I have never gone back to their office to pay subscription. I pay using my phone and my TV is recharged immediately," said a one Peter Mwima, a mobile money user.

At Fresh Cuts Uganda, one can buy the day's meat or supplies for retailers through mobile money and the supplies are dropped at their home or shop. And it is cheap to use mobile money.

While making transactions in banking halls will come with a charge of at least 2,000, with mobile money it is around Shs 1,000. Uganda telecom charges as little as Shs 600. More people are also opting to save money on their phones.

A 2012 study, Mobile money in Uganda; use, barriers and opportunities, by InterMedia, in partnership with the Bill & Melinda Gates foundation, shows that by the end of last year, nine per cent of households saved money on a mobile money account.

"A household with a registered mobile [money] user [is] likely to engage in a greater number of financial activities, including sending and receiving payments and saving money, than other types of households," the study report noted.

Bank of Uganda says since 2008 when mobile money opened shop in Uganda, about $4.5bn (Shs 11.6tn) worth of transactions have been made. As of 2012, there were 242 million transactions conducted over the mobile money platform.

"... The total number of registered mobile money customers grew by 114 per cent from 5.7 million customers in the year ended June 2012 to 12.1 million customers in June this year," Charles Abuka, Bank of Uganda (BOU)'s director for Financial Stability, said in The East African recently.

Although the Economic Policy Research Centre (EPRC) says 13 million adult Ugandans remain without bank accounts, Albert Jogoo, the director of ICT labs Ntinda, predicts a future where "close to three quarters of the transactions in Uganda would be made on phone."

The rich weigh in

Air Uganda and Kenya Airways have their air tickets available for customers who can pay through mobile money, an indication that the platform is no longer a preserve for the low-end market as was previously thought.

Multiplex Uganda allows those who own cars in Kampala to pay for the monthly parking fees through mobile money. Unfortunately, this is not good news for Multiplex agents.

"There is no reason why a company should employ so many people to collect money or reach out to customers when they can receive that money directly from the customer," Jogoo says.

BOU guidelines

"Telecom companies are eating sandwiches and cakes as banks eat humble pie," says a director at a top telecom firm, referring to how mobile money has eaten into the banks' niche. "They [banks] have lost it and they know it."

Earlier this month, BOU announced it had taken over the regulation of mobile money services. According to the new mobile money guidelines, a mobile money provider (say a telecom company) must be a registered limited liability company.

And a mobile money agent must also be registered as a business with a physical address and have an account with a licensed institution like a bank. A licensed institution (bank, MDIs) must receive approval from BOU for the provision of mobile money services.

If customers are aggrieved and the provider fails to address their concerns, they are free to report to the central bank, which would then issue a directive to the providers. Also, given the amount of money transacted, BOU suspects some money could land in the hands of criminals, possibly terrorists and money launderers.

In the new guidelines, the mobile money provider must prove that the money is free of those risks by keeping track of every transaction, and issuing annual reports to the central bank. The provider will also allow for occasional BOU independent audits.

Race for survival

Many banks have buckled under the pressure of competition that mobile money has come with by signing up to the service. Banks like UBA, Equity, Centenary, are also mobile money agents.

Farida Mukasa Kasujja, Stanchart's head of transaction banking, explains that mobile money shouldn't be looked at as a competitor to the banks, but a partner.

"We do a lot to enable it [mobile money] work," Kasujja says.

The trouble is that many customers avoid going into banking halls; they prefer the less-intimidating roadside kiosk to carry out their transactions. To stay relevant, banks have redesigned their strategies to keep hold of customers.

Luxury lounges, where coffee and snacks are served free of charge, have been introduced into banking halls to lure clients. Other banks have either eliminated or slashed bank charges. Opening an account is also free at some banks.

"It is a shift from traditional banking practices characterised by lots of paperwork and bureaucratic tendencies to a paperless, self-service, exclusive and personalised banking experience," said Herman Kasekende, the Chief Executive Officer of Standard Chartered, at the launch of the lounge earlier this year.

Many banks have also increased the hours of operation, with the likes of dfcu stretching it to 6pm on weekdays. Others, such as Diamond Trust and Stanchart, have branches open on Sundays.

There is a flipside to this mobile money revolution. While announcing this financial year's quarterly tax revenue, URA Commissioner General Allen Kagina said the preference for mobile money was reducing banks' profits and, therefore, affecting URA's tax harvest.

Also, Bank of Uganda says that controlling inflation requires higher vigilance because too much money is floating around because of the ease that has come with mobile money.

But for mobile money users such as Richard Mwebaze, the service is an excellent addition in a country not known for treating a customer like king.

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