Covid-19 triggers decline in agent banking

Agent banking was launched in 2018 to ease access to financial services and enhancing financial inclusion.
Since its launch, the mobile banking innovation is one of the most used financial platforms in Uganda besides mobile money.

In March this year, it was revealed that the amount of money transacted through agent banking stood at Shs2.2 trillion per month, according to Uganda Bankers Association (UBA).
However, the economic effects of Covid-19 pandemic have significantly affected the innovation, which has resulted into reduced transactions.

The number of times customers used agent banking to transact during lockdown dropped by 27 per cent compared to before the virus induced lockdown.

Between January and March, agent banking recorded 7 million transactions, but this number dropped between April and June to only 5 million transactions.

The Chief Executive Officer of Agent Banking Company of Uganda, Mr Richard Yego, attributes the drop to the effects of coronavirus.

“There is a 27 per cent drop in number of transactions in the second quarter of 2020 compared to the first quarter in 2020 due to Covid-19 effects, including the lockdown,” he says.

The value of monies moved through the platform dipped even further.

“There is a 28 per cent drop in transaction value in the second quarter of 2020 compared to quarter one in 2020,” Mr Yego says.

Value of transactions in quarter one 2020 (January to March) tallied at Shs6.9 trillion before taking a dive to Shs5.1 trillion in the second quarter.

This is despite the growth in number of active agents during the period, albeit slow paced compared to pre-covid-19.
President Museveni embarked on gradual lockdown measures in March starting with schools before declaring a national lockdown at the end of March. Only essential workers were allowed.

While bankers were rendered essential, their working hours were limited to operate from 9a.m to 3p.m compared to pre-covid-19 where some banks worked until 7p.m.

“We recorded over 40 per cent drop in the number of agents opening to serve customers especially between April and May when we experienced total lockdown. During this period, public and private transport was shut hence making it cumbersome for agents to move to open their premises for business. Shopping malls/arcades were also closed for a while meaning that agents housed in these premises could not open for business,” Mr Yego says.

Just like telecoms with mobile money, banks put in place measures to reduce cost of online transactions for customers during lockdown.

“Charges will be waived off for withdrawal transactions at agent banking locations for up to Shs50,000 per day for 30 days,” a notice from Uganda Bankers Association (UBA) read in part during lockdown.

Even with such incentives, the dip in the vibrancy of the economy still watered down the agent banking business.
“Beyond the inevitable impact of the global supply chain disruptions on the domestic economy, these measures - key among which include closure of all international borders to persons except cargo and a partial lockdown – continued to dampen economic activities, with the effects of the lockdown mostly felt in the services sector, informal trade sector, domestic transport, and retailers among others,” notes the April 2020 performance of the economy report.

As a result of the lockdown and a slowdown in economic activities, businesses laid off employees which affected many incomes. This could partly explain the drop in agent banking transactions, a business where cash deposits comprise 70 per cent of the transactions.

However, with the easing of lockdown measures, agent banking performance is expected to start picking up.

Bank members
Uganda has 19 banks conducting agent banking business with 17 of them live on the Shared Agent Banking System (SABS).
The SABS is a shared platform through which all banks can transact through a single agent.

According to Mr Yego, currently, Absa Bank Uganda, Bank of Africa, Centenary bank, DFCU, Diamond Trust Bank, Exim bank, Finance Trust, GT, Housing Finance, KCB, NCBA, Opportunity bank, Post Bank, Stanbic, Standard Chartered, Tropical and United Bank of Africa are live on SABS.

Orient Bank, Bank of Baroda and Top Finance Bank are also expected to join SABS.
Conducting agent banking but not subscribed to SABS is Equity Bank which pioneered agent banking in Uganda before all other banks is yet to join SABS. Eco bank is also yet to join SABS.

Future of agent banking
The budding business of agent banking is destined for more.
The business’ primary focus, Mr Yego says, remains scaling up the bank agent network (target 20,000 active agents by end of 2020, and additional 15,000 in 2021) in the peri-urban and rural areas parts of the country to serve the underserved and unserved.

Currently, the biggest role the agents are playing is facilitation of fast electronic bank account opening.
However, there is also focus to migrate the bigger chunk of banking services away from the banking halls to the agents to provide convenience to the customers.

It is also anticipated that implementation of the national broadband policy, which requires extending telecom services to 90 per cent of geographical coverage, shall guarantee superior processing speeds on point of sale devices being used at the agent locations as well as rapid Bank account opening.

This is expected to increase financial inclusion in the country.
On average, the transaction value in agent banking is more than Shs800,000.

This indicates the need for capital investment by agents to ensure seamless service delivery.
“Through strategic partnerships, we are also working towards easing access to float and cash for bank agents beyond bank branch banking hours,” Mr Yego, says highlighting development partners such as aBi Trust, Financial Sector Deepening Uganda, GIZ and International Finance Corporation.

FINANCIAL INCLUSION

Agent banking

Prior to the launch of agent banking by UBA, Equity Bank had been operating a similar model and had, by December 2018, accumulated about 1,683 agents across the country.
The shared platform, according to UBA, minimise duplication of services and maximises points of coverage spread across the country.
The system delivers financial services outside the conventional brick and mortar banking system with a licensed agent able to take deposit, withdrawals and approved payment services on behalf of a member bank.
The system, according to UBA has been a key driver in financial inclusion, providing a bridge between banks and customers across the country.