Fintech stakeholders want national payments systems law reviewed

BUSINESS   FINTECH

KAMPALA - Despite Uganda passing the National Payments Systems (NPS) Act in May to regulate electronic money service providers, stakeholders are opposing the law, saying it will stifle innovation.

The sticky issue that Financial Technology companies (Fintechs) are opposing is the minimum paid-up share capital requirement which they say is stringent and might push many startups out of the market.

The law, for instance, requires that electronic money service providers, who have been graded in categories, have minimum paidup share capital of sh10b, sh5b and sh3b, depending on the category.

Speaking during the 2020 Digital Impact Awards Africa at Hotel Mestil in Kampala on Friday, the Mallan Company chief executive officer, Malcolm Kastiro, said the law in its current form, favours the "old guards".

"With all that minimum paid-up capital share capital, where is fair competition? This is creating a barrier to entry; we need to ensure that this regulation does not stifle the sector," Kastiro said.

The Financial Technology Service Providers Association (FITSPA) company secretary, Brian Kalule, acknowledged that the minimum paid-up share capital is too high, but noted that the matter has been referred to Bank of Uganda, the regulator, for consideration.

"In any view this is a big sum; no wonder stakeholders say it is prohibitive. The good news is that the regulator has shown willingness to revisit the figure to accommodate the innovators who may not be financially endowed," Kalule said.

Kalule said that regulating electronic money issuers is key, given the systemic risks payments pose to the financial system.

"The mobile money transactions in 2019 constituted half of Uganda's Gross Domestic Product

and that causes a systemic risk if not regulated," Kalule said.

Review the law

Damali Ssali, a Trade Development expert, also alluded to the need to review the regulatory framework so as to enhance, rather than curtailing financial inclusion.

"Several African countries are still missing regulatory frameworks to guide financial inclusion and digital financial inclusion; those that do, the regulations are so stringent," she said, citing the Know-Your-Customer (KYC) requirements that govern digital financial services.

However, Pegasus Technologies managing director Ronald Azairwe defended KYC, saying it is key for the growth of the sector.

"KYC is crucial. We know that different players have been working in silos, but we are happy that we are closing that gap by having a point of truth which is the NIRA for the national identity cards. We are optimistic that NIRA will allow all players to integrate into this system next year," Azairwe said.

Jane Mugenyi, the MTN Group strategic partnerships manager, said KYC is key if the industry is to minimise fraud incidents.

To further fight fraud, Mugenyi called for increased collaboration among players so that any individual who commits fraud is blacklisted by all players.

Interoperate to boost inclusion

Additionally, players echoed the need for interoperability and enhanced collaboration to ensure inclusive financial inclusion.

Ssali noted that while the 2020 Bloomberg report indicated that seven out of the 10 fastest growing economies globally are in Africa, including Uganda, Ethiopia, Ivory Coast, Egypt, Rwanda, Ghana and Kenya, that economic growth cannot be socially sustainable unless everyone is financially included.

"Unfortunately, financial inclusion is one of those areas that the Africa continent is lagging behind as a continent. Whenever a society achieves financial inclusion, it is able to mobilise higher household savings, increase the number of entrepreneurs in that population and this enables the people in that population to invest in themselves and in their families," Ssali explained.

According to John Mark Ssebunnya, in officer in charge of Fintech technologies at MTN Group, the reason most people are still not financially included, despite the effort put in over the years, is the high cost of offering financial services.

"Banks have existed for over 100 years, but they never included everyone because it did not make business sense due to the high cost versus revenue. We got to the digital era where it became a little bit cheaper to serve the masses, but none the less, we have not yet achieved inclusion for everyone still because there is a cost element.

To lower the cost, we need open source systems that allow for interoperability; that is going to be the only way to lower costs and have everyone financially included," Ssebunnya said.

Innocent Kawooya, the CEO HiPipo, also urged players to adopt level one principles, which, among others, include open-loop interoperability between all providers, instant funds transfers and same day settlement to ensure financial inclusion for all.

About the awards

The 2020 Digital Impact Awards Africa Awards were organised by HiPipo in partnership with ModusBox, Include Everyone, Mojaloop and the United Nations Capital Development Fund.

The Digital Impact Awards Africa is a platform that promotes Digital Inclusion, Financial Inclusion and cybersecurity. They seek to recognise and appreciate different individuals and organisations that are spearheading the use of digital mediums to better serve their communities.

Bank of Tanzania (Tanzania Instant Payment System (TIPS) won the Regulatory Financial Inclusion Rails Award, the Fintech Investment and Inspiration Sprinter was won by PayStack while MTN MoMo won the Best Financial Inclusion Impact award.

Jumo bagged the Best Fintech (lending), Best Fintech (remittance) was won by WorldRemit while PiggyVest won the Best Fintech (investech).

Flutterwave emerged winner under merchant payments category, Carepay won the best healthtech category, FarmDrive (AgriTech), M-Shule (EduTech), Craft Silicon (Fintech solutions provider), Comviva - Mobiquity Money (digital financial services platform) and Hamwe (Agritech Innovation Excellence).

The others are Doreen Lukandwa (WomenInFintech - Leadership award), Jumia (e-commerce innovation excellence), Beyonic (payments innovation excellence), YOTV (content innovation excellence) and Pegasus (Fintech aggregator excellence - Diamond), True Africa (Fintech aggregator excellence- Gold), Yo Uganda (Gold), Beyonic (Platinum) and Craft Silicon (Platinum).