By Denis Nabende
BANKING FINANCE BUSINESS
KAMPALA- On June 6, 2019, I went to my bank's ATM in Ntinda. I needed some money for the weekend.
After making it up to the queue to the ATM, I got an error message saying the machine had run out of cash and couldn't dispense the requested amount. My next available option was to either look for an agent of my bank whose location I didn't know or use the Visa ATM from another bank that was a few metres away.
Now, anybody who has used Visa services to withdraw money from another bank's ATM knows that it comes with an extra cost. I resorted to it anyway and ended up being charged sh6,500 to withdraw sh100,000.
This was in addition to what my parent bank had charged for the initial withdrawal. In total, I spent close to sh8,000 on a single withdrawal. I have been told other banks charge up to sh15,000 for Visa transactions!
The justification for these unusually high charges is that the banks have to cover Visa software licence fees, servicing of ATMs, security, cash in transit (CIT) and other associated costs which are then passed on to the end user.
I am not sure how much Inter-switch charges users for transactions, but while I was being exorbitantly taxed to access my own money, I counted over 15 agents of mobile money and aggregators like Pay-Way close by. Currently, conservative estimates put the combined total number of active mobile money agents at about 180,000 across the country. In the last quarter of 2018 alone, a report from the Uganda Communications Commission noted that 536 million transactions were carried out on these Mobile platforms, amounting a whopping 14.7 trillion!
Why don't the traditional banks seem to see the opportunity to their business that the rest of us see, and if they do, why haven't they thought about making these mobile money agents options for their customers?
If this was available to me, I would have easily walked to any mobile money or Pay Way agent and withdrawn my money at a far less cost than what I actually incurred at the ATM. Direct system integration via API between my bank and the telecoms or Fintechs like Pay-Way would have enabled me to draw the money I needed more quickly and cheaply. Since the enactment of the agency banking law, commercial banks have been on a big drive to recruit agents. Yet they needn't reinvent the wheel.
With current technologies, they could choose the more efficient option of entering into revenue-sharing agreements with telecom companies that would grant them access to the over 180,000 mobile money agents so their (banks') clients can access their money as and when they want. All a customer would need to do is choose the agency banking option on the mobile money menu via a short code or simply walk to a Pay-Way agent.
Agency banking model
A 2016 report on the viability of agency banking in Uganda by the Financial Sector Deepening in Uganda indicated that the most common transactions clients of commercial banks made were the ‘Cash in' ‘Cash out' and account balance checks.
Should the commercial banks invest in a new agent network to provide these services when almost all of them have developed digital banking apps that offer customers the option of paying their bills directly from their accounts? Common- sense suggests it's no longer necessary.
Consider this fact: Of Uganda's 24 million mobile phone users, 23 million have mobile money accounts. On the other hand, the country's 25 Commercial banks currently have a total of five million accounts- almost 3 times less than the number of mobile money account!
The World Fintech report of 2019 indicated that 66% of banking executives considered differing cultural mindsets between their organizations and collaborative partners like Fintechs as the most significant hindrance to open banking and data sharing. In Uganda, while telecoms have given Banks access to first layer information (Name, Phone number) of clients to enable services such as wallet to bank, the banks have not reciprocated the gesture. They sight customer privacy concerns for not collaborating. But why are they convinced that users would mind giving away necessary data to telecoms to enjoy the resultant convenience of quicker and instant financial transactions?
In the fourth industrial revolution where data and technology are key drivers of customer experiences, banks need to invest more in digital product developing talent and innovation that centers the convenience of the end user. A good starting point would be exploring systems integration with Fintechs. All available evidence suggests that rather than keeping as a stand- alone competitors, Banks, and Fintechs are in the long-term better served collaborating to improve their customer experiences. In that way, they would be able to offer much-needed convenience to end users, while earning revenues for all players in the ecosystem. The banks should use technology instead of brick and mortar to improve access to their services. It is a win-win opportunity. Will they take it?
The writer is the head of corporate affairs at the Africa Vending Systems-PayWay