Silence in banks and utility offices is increasingly sounding louder than usual. Customers are opting for mobile, web transactions or even point of sale terminals in supermarkets, perhaps because of the increasing pressure from work.
The situation is dire. Research from Consolidated Analysis Centres Incorporated (CACI) predicts that a typical consumer will visit a bank branch just four times a year by 2022.
While electronic transactions ride on convenience, there is a cost attached – one that may not be revealed directly. But who pays? The customer.
For instance, Shs7860! That is the cost Mr Ben Ruhanga incurs for just paying utilities on a monthly basis. In a year, that amount totals upto Sh94,320.
Out of his monthly earning of Shs2m, he deducts Shs300,000 every beginning of the month to pay his home bills.
Mr Ruhanga saves and banks with Standard Chartered bank, which charges a standard fee of Shs2,000 to transfer his money to his mobile wallet.
Upon receiving the Shs300,000, he disintegrates the amount between his water bill, electricity bill, pay television as well as insurance premiums of Shs100,000 for a life policy.
To pay for these services, the service fees tantamount to a shoulder shrugging Shs7200.
Ms Grace Birungi, a young woman currently employed at her first job, earns an average of Shs700,000 per month.
Her salary is divided amongst utility expenses such as water, electricity, pay television and Safeboda subscriptions on a monthly basis.
She is subjected to service charges worth Shs5,100 whenever paying for utilities. In a year, she spends a minimum of Shs61,200 when paying her bills using mobile money.
Whenever Ms Doreen Nalumansi needs money, she conducts a bulk transfer to her mobile wallet from her Barclays account using internet banking.
She is charged Shs2,300 for every transaction, regardless of how big or small the transaction amount is.
While electronic transactions come with convenience, the costs limit customers from using digital platforms to pay for goods and services.
According to Jumia mobile report 2019, only 6 per cent of their transactions are done through mobile money.
To explain the composition of electronic service charges, Mr Japheth Kawanguzi, the founder Innovation Village, says utilities paid via mobile money include charges by the telecommunication company and aggregators.
An aggregator is the supplier of the technology infrastructure through which the service is delivered.
For instance, in Uganda, we have companies such as Pegasus that enable electricity and water transactions, Beyonic, the aggregator for Safe boda transactions and Cellulant, an enabler of banks among others.
According to Mr Kawanguzi, the cost is made up of the charge set by the middle men known as aggregators and telecommunication firms to raise profit.
“It is mostly the cost and business models of companies that facilitate the transactions because they also have to make money,” he says.
The more the number of tax payers in the transaction, he adds will create an increased service charge.
The cost of a service also depends on the business model of the service provider. As Mr Joseph Lutwama, head of Business environment Financial Sector Deepening explains, companies operate on different business models which determine the cost of service delivery.
“It depends on the strategy of the company, whether it is low cost or differentiation,” he says. Differentiation strategy rides on the back of providing a unique and unattainable service for which people would pay a premium.
Companies that leverage on the low cost strategy, Mr Lutwama says, usually offer basic services. However, those that engage in the differentiation model, will charge a premium premised on the fact that any additional experience added for a customer comes at a cost.
The target market for differentiation model based companies will ordinarily folk out more money to acquire value for their money.
Cost of convenience
Gone are the days when customers walk into banks to make transactions. Digitisation, now the front runner of strategies that companies are embracing, has eliminated the need to move from one place to another.
Ms Irene Owomugisha, a frequent customer at Total Fuel station, buys groceries and fuel using her Centenary Visa card because the nearest ATM is sometimes far.
With the comfort she experiences with that set up, she does not check charges or account for how much she spends.
“I do not know how much they charge me. All I care about is how convenient it is,” she says.
Notable to say, her worries are anchored on the cost of using interswitch, ATM machines that accept cards from multiple banks.
Ms Nalumansi, a resident of Kyaliwajala hails online transactions for cutting her time and transport costs.
With a swipe and click of a button on her computer, she settles her bills from her place of work.
“For me it is cheaper and convenient. Depending on traffic, it can take close to 3 hours to travel and finalise transactions from the bank yet I will still be charged,” she says.
She is reiterated by Mr Ramadan Goobi, Economics lecturer at Kyambogo University who says electronic transactions precisely mobile money are convenient and cheap in the long run.
While electronic transactions bare a cost, the convenience hatches a progeny dubbed implicit subsidy.
Implicit subsidy in this case means the non- cash benefits such as time and convenience accrued because of using electronic transactions.
“You also save money by transacting online because you would have maybe spent time paying bills and lose money elsewhere but now you save that,” he says.
In most cases, the number of users of technology determine the service costs charged. For instance, more internet users cause a drop in internet costs.
Could costs drop
However, until there is an augmentation in players in the financial technology space, experts believe the cost of online transactions will remain high.
The situation is exacerbated by lack of regulations in how much should be charged especially by telecoms such as Airtel and MTN, who together own 90 per cent of Uganda’s market share.
“Being an oligopoly, MTN and Airtel, may have agreed on costs. That is why their costs are not so far apart,” Mr Lutwama says.
However, he says, Visa card payments are not costly because they are spread out among a number of merchants operating big amounts.
“Competition will be the drive for lower costs,” he predicts.
A competitor delivering the same service at a lower cost premised on the advancement of technology will encourage lower service costs in online transactions.
Mr Kawanguzi’s notion of dropping service charges is anchored on eliminating the aggregators in service delivery.
In an effort to mitigate the cost of electronic transactions, MTN last year opened its mobile money API which gave innovators an opportunity to integrate their applications with mobile money.
Mr Kawanguzi is optimistic that the move by MTN to open its API has eliminated the need for aggregators, meaning the service charge will in turn reduce.
According to World payment report 2019, Application Programme Interface (API’s) are mainly used to upgrade technology to support existing infrastructure.
The trend, the report says is that several banks have implemented APIs to facilitate data sharing collaboration with third parties.
Only 10 per cent of Total Fuel station customers on Jinja Road use visa cards to buy fuel. The rest either use fuel cards that offer discounts while others pay cash.
Some Safeboda riders frown upon a customer who rides using the prepaid credit system saying they need cash to survive sometimes.
According to Mr Goobi, electronic transactions have been embraced, but the supreme challenge of lack of infrastructure impinges the numbers before they peak.
“The infrastructure is poor. At times the network is off and you have an urgent transaction to make, it can affect you,” he says.
Electronic transactions are also avoided because they eliminate any possibility of bargaining; a common characteristic of Uganda’s trading.
The public still has phobia for the security associated with using virtual money.
“People still believe in paying for what you can see. But it will change with time,” Mr Lutwama says citing how people overcame the reluctance to shift to paper money from gold coins.
Keep accountability of your financial expenses. If you want to control how much you incur when transacting electronically, you can indulge in bulk transactions vis a vis the proportionated.
It is important to plan for a week or month and incur one cost for a large sum. This saves you from incurring small costs that amount to high fees periodically.
Online sources advise customers to use services that do not fluctuate such as banks.