Quick! Let’s Triple The Number Of Bank Accounts In Uganda

I had a call from the village on Monday. I needed to make a deposit into the farm manager’s account urgently in order to allow him pay the vet. It was 3.45pm, I was busy, and had a packed social evening planned. I just couldn’t make it to my bank (to withdraw the money), then run across to his (to deposit the same) in time.

“Several solutions available to you”, you would think. Mobile banking to trigger the transfer? Nope – my bank’s mobile banking platform does not support inter-bank transactions. Internet banking? Nope, not that either, as the day’s “cut-off time” was fast-approaching and it would take a monumental effort (read “begging everyone from the Branch Manager to the Executive Director”) to have my transfer effected before close of business. Mobile money, surely would be the answer, right? Unfortunately, not that either as the mobile money agent in the village never has enough float to support any transactions over two hundred thousand shillings (approximately USD 60) and our requirement was significantly higher.

I was stumped. Here I was, knowledgeable about all these payments options, but with no solution to what in effect was a simple money transfer transaction.

But I also know that we are on the verge of a significant change in the financial landscape in Uganda, because Agent banking will soon solve these problems.

The findings of a recent survey carried out by MicroSave and commissioned by Financial Sector Deepening Uganda (FSDU) found that up to 58% of Ugandan adults that are currently unbanked could benefit from Agent banking. This means that an additional 9.3 million Ugandans could have access to formal financial services, thus tripling the current number (approx. 5 million accounts held in the 24 Commercial banks in Uganda). Agent banking would allow these “unserved” Ugandans to open accounts and carry out their bank transactions through their local SACCOs, petrol stations and grocery shops.

So if agent banking existed in Uganda, I could have deposited the cash onto the farm manager’s account at my local pharmacy in Kampala, and ask him to walk over to the SACCO in Mawokota village to withdraw it – also from his bank account.

For providing these basic cash-in and cash-out (ie deposit and withdrawal) transactional services, both the pharmacy in Kampala and SACCO in Mawokota would earn a small commission from the bank. The survey found, unsurprisingly, that the biggest motivator (eight in ten interviewed) for the businesses intent on engaging in the bank agency business would be the additional potential revenue that would result from the commissions directly and the added foot traffic into their premises. Indeed, these businesses felt that the cost of additional compliance, security and capital (i.e. for float) requirements would be offset by the additional revenue gains.

Despite the fact that bank agent services have not been rolled out yet, the potential customers had some very interesting and helpful advice to share. The survey found that customers used the existing alternative channels (ATMs, mobile banking) because of speed, convenience and costs. This gives banks very clear signals to respond to – ensure a fast service, adopt agents in strategic locations and to price appropriately – if they want the customers to use their agent channels.

It is expected that banks will roll out their agent banking services starting with the“vanilla” deposits and withdrawals only. This makes sense, given the current demand and simplicity of these transactions. However, key opportunities exist for banks in the areas of government to citizen payments (including programs like the pensioners’ SAGE payments), the direct deposit money transfer (like the Kampala to Mawokota example described above,  currently not accepted at mobile money agents), and the easing of loan instalment repayments as it will eliminate the need to walk to bank branches to deposit money in time. The findings therefore point to significant increases in the number of accounts opened and the activity within in.

The expected increase in activity will have some banks excited, but others concerned. The regional banks (like KCB, Equity Bank) will use their experience in leveraging technology adequately to roll out agent services to overcome the potential challenges of obtaining trust within the service and agent network, fraud, customer service and technology integration to scale up their services quickly.  It is expected that this will improve overall competition by improving financial consumer choice.

This expectation of increased competition has driven significant interest in the Uganda Bankers’ Association initiative to provide a shared agent and technology platform from which multiple banks’ services can be accessed. Engagement with them indicates considerable traction in delivering the technical offering, and it remains a very exciting prospect for the wider market if, working with the multiple stakeholders, the right service efficiency and pricing model can be obtained.

So how did I solve my “simple” money transfer problem? The old-fashioned way, I’m afraid. A visit to the ATM, followed by a two-hour long wait in the queue to deposit the money into the farm manager’s account. And all of this happened on Tuesday, a day later than I would have preferred. You can certainly count me in as one of those that will be the very early users of agent banking.

Written by Peter C. Kawumi

Former Innovations Specialist at Financial Sector Deepening Uganda (FSDU)

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