In the later part of the 90s banks went into over drive as they heavily invested in expansion given the apparent need to take services nearer to the people.
However, the expansion was short on innovation as the best thing to have happened then was the establishment of Automatic Teller Machines (ATMs).
By then the in-thing was an ATM card as it symbolised class and safety and was considered a game changer until the 2000s when the mobile money revolution arrived into Uganda.
“What a revolution we are witnessing. In the shortest time we have grown from 10,000 mobile money accounts in 2009 to 19.5 million accounts,” Louis Kasekende, the Bank of Uganda deputy governor, said while launching the Centenary Bank Mobile Wallet in Kampala last week.
The Mobile Wallet powered by MTN and Airtel mobile money services, allows Centenary Bank customers to transact on their accounts using mobile money accounts.
Truly, ATMs did not help much in terms of financial inclusion but with the revolution of mobile money the dynamics have changed.
Many people up to now have not considered using banking services because of a ‘rigid’ attitude but have quickly subscribed to mobile money services largely because of flexibility.
However, just like the old adage – “if you can’t beat them, join them,” banks are not letting go as they have introduced new innovations to match up the bandwagon.
Banks are courting telecoms as they seek to find a way of how they can tap into the ‘phenomenal growth’ that has seen the mobile money industry grow from a paltry 10,000 subscribers in 2009 to the 19.5 million accounts, according to Uganda Communications Commission.
But this should be done in an innovative way. “You can’t really cut and paste models”, according to Patrick Mweheire, the Stanbic Bank managing director, who emphasises the need for Ugandan banks to spend more time finding out what the phones can do.
For instance, he says, more people in Uganda are using the mobile phone to transact, which is relatively different with South Africa where majority of the population uses plastic cards to access their money from banks.
Why are banks worried?
For years stunted growth has been a key feature of Uganda’s banking following the liberalisation of the sector in 1994.
The perception then had been that liberalisation could create more competition with the ultimate target being giving value for money services that could allow a first-paced growth in the sector.
However, 21 years down the lane (when the banking sector was liberalised in 1994) the first paced growth has not been achieved as the banking sector has grown from 500,000 to six million accounts.
The rate of growth doesn’t however, compare well with that of mobile money which has grown from 7 per cent to 34 per cent in the last five years.
A 2013 report compiled by Finiscope indicated that “use of formal banking institutions remained the same while the share using only non-bank formal institutions (including mobile money) increased from 7 per cent in 2009 to 34 per cent in 2013 mainly driven by the surge in use of mobile money services between 2009 and 2013”.
At least 20 per cent of the adult population, according to the report had access to a formal banking institution in 2009, growing to a paltry 21 per cent by 2013.
The slow growth, as bankers agree, is completely dwarfed by the inroads made by mobile money and savings and cooperative organisations.
“We’ve been struggling to break boundaries through physical structures and ATMs. Yet we realised we needed to serve more people, which with traditional banking is not happening,” admits Fabian Kasi, the Centenary Bank managing director.
“We have been challenged and we need to find how we can benefit from the mobile money revolution,” Kasi said at the launch of the Mobile Wallet.
Similarly, Stanbic Bank, one of Uganda’s largest banks by assets is weighing in on using the mobile money platform an indication that mass financial inclusion is the only way through which financial institutions can make business sense.
“We spend a lot of time thinking about these 20 million mobile money users and there are only six million bank accounts. It is very clear that if you have to make business sense and tap the unbanked, then you have to go through mobile money,” Mweheire says.
In 2014, an equivalent of the 2015/16 budget – Shs24 trillion was moved through mobile money, highlighting the growing importance of the sector to growth.
The simplicity of operating a mobile money account clearly gives banks sleepless nights as it will be very expensive if banks attempted to lower the cost of their services.
“It is very expensive for us to try and include all our customers through a financial inclusion initiative but as we build up our digital capabilities we hope to serve customers remotely,” says Kevin Wingfield, the head of personal and business banking at Stanbic Bank.
The challenge of matching up has been heavy with some banks having to close off some branches, especially in rural settings due to non-profitability.
But does mobile money compliment banking?
During a recent survey by Brookings Institute, Uganda was ranked fourth out of 21 countries that have excelled in financial inclusion.
But the elephant in the room remains regulation, which as the survey indicated is being frustrated by the absence of laws, some of which have been delayed and others still in draft format.
However, this has not stopped new innovations, as Kasekende notes, “the power of collaboration should go beyond the knowledge and competence of a single industry”.
To banks, mobile money is no longer a threat but a compliment that they can leverage on to make new inroads to tap into majority of mobile money users without bank accounts.
But to Tom Gutjahr, the Airtel Uganda chief executive officer, banks have simply failed to break into rural areas, which calls for the establishment of “an ecosystem where everyone can participate”.
Holding on to optimism
The Central Bank believes the current forward looking innovations will help to improve on penetration into the banking sector.
“In future, I hope we can transform mobile money accounts into bank accounts or other accounts within the formal financial sector,” Kasekende says.
But banks are not just sitting around as some including Stanbic Bank, are already considering micro services such small holder loan products, which can be accessed through mobile money.
All the innovations show the potential to transform society through financial inclusion and quick and instant service delivery.
For instance new innovations such as money remittance, ticketing, payment of fuel, utilities and Tv subscription have shown a growth in innovation.