It is not a secret that banks and telecommunication companies are at war with each other.
Mr Gad Agaba, senior engagement manager, Cellulant Uganda, does not recall when he last went to his bank branch or Automated Teller Machine (ATM) to transact. The advent of mobile money and thereafter integration between banks and telecoms has enabled him deposit and withdraw money from his bank to mobile money account and vice versa.
“If you were to ask me when I last went to my bank, I would sincerely tell you I do not remember. Why would I go there now when I have my bank on my phone,” he says.
While scrolling through his phone, I noticed that he transacts via his bank and mobile money wallet over 30 times in a month, a minimum value of Shs20,000 to above Shs1m.
But for people like him, it is going to cost more to enjoy this convenience come June. Leading telecommunication firms, MTN and Airtel announced an increment in their bank to wallet charges by thrice the prior amount.
The increase, by a margin as high as Shs12,000, will affect mainly the higher transaction tiers which are characteristic of the bank to wallet segment.
Bank to wallet means withdrawing money from your bank account using your mobile phone using a USSD code or a mobile bank application.
Wallet to bank signifies a withdraw transaction from your mobile money account to your bank account.
The new charges by telecoms will, for instance, mean a customer moving between Shs1m and Shs2m will incur Shs13,500 up from Shs4,450 and between Shs2m to Shs3m will be charged Shs16,500, up from Shs4,450 previously.
If you think that is high, think again, because that is only the charge from telecoms for using their mobile money platform. Banks also add their charge for the transactions on the hefty mobile money charges.
Unlike the telecoms who reveal how much they charge, the additional charge by banks is not mentioned or displayed. So a customer needs to calculate the balance on their bank account to ascertain the total charges incurred.
Cause of hiked charges
It is still not clear why telecoms have increased these charges as most of them are tight lipped. Statements taken on record indicate that the surge is the aftermath of an increase in operation costs by telecoms, without highlighting the exact costs.
The 1 per cent tax levy on bank to wallet transactions which was introduced at the start of this financial year was withdrawn following an outcry by the public.
Airtel in response to the increase in the charges said there would be dismal impact on the public since the bank to wallet segment is used by a small fraction of its customer base.
“What is most important to note is this affects a small segment of customers,” Mr Andrew Mugambwa, head financial services Airtel Money, says.
Uganda’s mobile subscription currently stands at 23.2m. Mobile money, on the other hand, has raised 23m subscribers compared to the banks’ less than 10m accounts.
Mobile money - the key driver of financial inclusion, has allowed banks to leverage on their infrastructure, thus fetching an additional revenue stream and source of deposits.
Bank of Uganda puts the average value of bank to wallet over the six months to January 2019 at about Shs120b, and transaction volumes averaging 715,000.
However, the increase in charges, which some customers deem “prohibitive” could completely eliminate the dismal transactions going through the bank to wallet.
This is because a customer is left with three options, incur the high charges, retain money on either mobile or bank account or return to the old fashioned bank branch or ATM to transact.
If customers opt to return to ATMs or bank branches, it will not only affect efforts to go cashless, but also increase the maintenance and operation costs of banks who have been closing branches and reducing staff.
These efforts are taken to reduce operating costs which have a bearing on the interest rates charged by banks when lending money.
High interest rates on loans could have implications on the cash flow in a business, which when also affected could undermine a business person’s ability to pay their rent.
It could also force businesses to cut costs which is sometimes done by reducing the number of people employed.
However, for wallet to bank transactions, Bank of Uganda says there is some resistance on the part of banks in allowing telecoms have access to first layer of information such as name and account number, citing privacy needs for their customers.
“The telecoms argue that they have allowed the banks the same access and thus the benefit should be mutual,” Mr Adam Mugume, the director research Bank of Uganda, says adding that Wallet to Bank consequently is not very popular and remains limited.
Mr Godfrey Mutabazi, executive director Uganda Communications Commission (UCC) in February said telecoms just like any other business, are trying to beat their competitors.
“MTN’s mobile money is a business like any other. But when you cross the border and do business with banks, it is another regime which is competing with them. Therefore, for them not to lose out is the reason they want banks to pay,” he said.
The central bank however says it has no legal mandate to engage the companies that are deemed to be overcharging customers or extending sub-standard services.
The payments act that is currently before Parliament will separate financial services from telecommunication services and will in essence change the operations of mobile money services.
Rise of agent banking
Competition is healthy and required for an economy is to grow. Banks and telecoms are testament to that.
When mobile money first came to Uganda in 2009, banks were left out and telecoms made a killing. Banks later asked to ride alongside telecoms on their infrastructure. But in 2018, they went independent with agent banking.
Bankers say they are seeing the revolution in the agent banking space.
The Agent Banking Company (ABC) says agents of at least 10 commercial banks that are providing this new banking service transact an average of Shs30b each day.
Meaning in a month, about Shs900b is transacted just a year after this platform was launched last year.
Mobile money, on the other hand, according to the third quarter 2018 UCC report, recorded 536m transactions with a combined value of Shs14.7 trillion for the three months. It means mobile money, on a monthly basis, transacts about Shs4.9 trillion.
Among the benefits agent banking has over mobile money is low transaction charges and tax exemption.
The war comes at a time when government is drafting the National Payments policy which among others, seeks to ease interoperability among different financial technologies.
Mr Micheal Niyitegeka, International Computer Driving Licence (ICDL) Africa country manager for Uganda, says banks currently have no choice but to heed to telecom terms if they want to maintain the relationship lest they’ll create their own mobile money infrastructure through simcards such as Equity Bank’s Equitel simcard in Kenya.
“Some of the big banks could lean in the direction of building their individual mobile platform that focuses on payment channels,” he says.
Reports by Business Daily indicate that Equitel - Equity bank Kenya’s mobile money platform grew by 73 per cent in the number of mobile money commerce transactions valued at KShs449.2b in 2018.
He also said there is a need to understand the regulatory measures especially whether Bank of Uganda or UCC takes mandate to bring the two industries together.
Mr Agaba advised telecoms and banks to work together to grow not individually but the economy at large.
“Rather than telecoms pushing banks to the corner, it would be nice to sit and harmonise with banks, so that if they are going to increase, they can say look, we have this cost,” he says.
“The more banks feel trapped, the more they will focus on agent banking eliminating telecoms altogether,” he warns.