Mobile banking coming sooner than we know

Last week, Bank of Uganda released its annual report for the year ending in June.

Aside from the big numbers — the economy grew by 3.1% in 2019/20, down from 6.8% the previous year, that private sector credit had slowed due to the COVID-19-related lockdown, there was the interesting statistics on the mobile money front.

In the just-concluded year, sh79.7 trillion was transacted on all mobile phone platforms, this figure was up 19% from the previous year's sh66.9 trillion.

To put this in perspective, the national budget of Uganda for 2019/20 was sh40 trillion, so twice as much money went through the mobile phone platforms than the Government shelled out to run its programmes.

Also, this number, which comes to about $21b, is 70% of the sum total of all the economic activity or Gross Domestic Product last year. This last comparison, no less important than the fi rst, suggests, no, points to the fact that mobile money is playing an increasingly significant role in the economy.

The service has evolved from just a money transfer business between mobile phone subscribers, now you can save and borrow money off your phone and slowly but surely gaining traction as a payment system.

We do not have to look far to discern the future. Across the border in Kenya, Safaricom's MPesa is now a preferred payment system but in addition, now companies there can transact with each other on the platform. At the current rate of growth, mobile money transactions should double every four years. But in the last year or so, telecom companies have partnered with banks so that now we can make deposits to or withdrawals from bank accounts from our mobile phones. This should add some jet fuel to the growth numbers. However, average value per transaction has slipped from 2018/19 when it was sh32,000 to last year when the average was sh26,000. The increase in transactions by 50% and the lowering average transaction value suggests that people further down the pyramid are latching onto the service. Probably the best case for how mobile money is improving financial inclusion. And that is important, even critical for the economy.

It is possible that this sh79 trillion would still wind its way through the economy. But instead of it lying inert under our mattresses, stuffed in our sox or snuggly against our breast, this money is being made to work for others who need it. This is where the action is going to be in the coming years.

In more advanced economies, only about a fifth of the currency in circulation is being held in cash. In Uganda, the inverse is true. Is it any wonder that we have high lending rates, fewer borrowers and most of our assets have not been activated?

The telecoms are doing what the banks have failed to do for a hundred years. They are roping in the lowest of the low, shepherding more of the middle-class earnings and allowing the captains of industry to pay easier for the services from their workers.

While the high street model of banking is dead and buried - thanks to improvements in technology, telecoms are providing financial services from a fraction of the banks with the outdatedly large offices and overpaid staff.

It is not very far off into the future that either central banks will come in to regulate the financial arms of telecos or the telecos will hive off their mobile money operations and register them as banks in their own rights.

The latter, rather than the former, is the better way to go. However, the central banks would have to adjust their regulation so as not to straightjacket the mobile money bank operators.

It reminds me of when MTN first came to this country two decades ago. Under their second network operator licence, they were obliged to roll out 89,000 lines within five years, they achieved this in just about a year.

The supervisors of the license insisted they wanted to see copper lines crisscrossing the streets. They were fixated in the form rather than the substance. That, too, will be the challenge of the central bankers. When history is written, mobile money will be one of the biggest enablers of Uganda's recovery and eventual take-off, even if it has only been in operation for a decade. We are looking forward to some exciting but disruptive times in the financial sector.