What lies ahead for the banking industry?

Customers in a banking hall. Central Bank has cautioned banks that increased competition requires a redesign of business models, in a manner that puts agility and flexibility in response to customer expectations and emerging risks from technology and climate change. PHOTO/FILE

What you need to know:

The future generation of banking customers may be more biased towards omni-channel banking. This has a direct and positive bearing on its relationship and the experience it guarantees the future generation of customers.

To compete favourably, the bank of the future will need to embrace emerging technology, remain flexible to adopt evolving business models, and put customers at the centre of every strategy.

Faced with changing consumer expectations, banks need to put strategies in place to match the changing banking sector.
The future of financial institutions will, according to a financial sector player, largely be shaped by empowered consumers. 

“There is a very good sign that the financial system and indeed banking is going to redefine itself because of the empowerment of the end consumer,” Future Links Technologies chief executive officer, Mr Vincent Tumwijukye said.

He added: “I believe that in the next five years we have to redefine banking not on the account of the structures of banks, but rather on the purpose of banking. And for our case, this is increasingly becoming a reality.” 

Speaking in an interview last week after the launch of MSACCO which is set to democratise financial service through an efficient community-driven marketplace, Mr Tumwijukye said days of physically attending to customers in the banking hall are quickly becoming unnecessary and archaic. 

In a fast-paced economy, queuing for banking services is not only regarded as a complete waste of time but costly as well. 
Perhaps this explains why the Ugandan financial system, according to a report titled; Financial Innovation in Uganda: Evolution, Impact, and Prospects, authored by researcher Doreen Katangaza Rubatsimbira, is characterised by a high share of the population without access to banking services, very low private credit to GDP ratio and very high real lending rates. 

This is in addition to lack of credit for Small and Medium Enterprises (SMEs) and small farmers, high operating costs of banks, and lack of long-term capital for business investment among others. 

The banking sector in Uganda is not averse to technology. The sector has evolved into the usage of Automatic Teller Machines (ATM), mobile banking, online banking, and agency banking have altered financial services delivery beyond the traditional practice of physically visiting the banking hall to transact. 

The sector has also enlarged the scope of operation for financial institutions and expedited the accessibility of financial services. This is a revolution in itself. 

Revealing perhaps, not until mobile money innovation hit the scene in 2009, offering mobile payment services that has the power of accessibility, inclusion, and affordability brought to the fore the real face and power of a long-time excluded consumer in financial inclusion.    

As of June 30, 2022, mobile money transaction values significantly increased by 38 percent from Shs113.38 trillion in June 2021 to Shs156 trillion in 2022, while the transaction volume increased by 22 percent from 3.9 billion transactions to 4.8 billion transactions over the same period.

Additionally, in the same period of six months, a total of Shs9.3 trillion in approximately 39 million transactions was transferred by payment system operators such as FutureLink. This in many ways exemplifies a mockery of the traditional banking system and its attendant rigidities to quickly adapt. 

A woman completes a cashless transaction. Financial technologies are disrupting the traditional way that financial firms perform business. PHOTO/FILE

Tell-tale sign
The growth in mobile money has been astonishing, with the number of registered subscribers growing from just above half a million in 2009 to 21 million in 2015 and 28 million in March 2020.
As of February 2021, the number of registered mobile money customers in Uganda amounted to more than 30 million, according to telecom sector data, which is about three-quarters of the country’s population.

“There is a clear indication that we ought to be focusing on the purpose of banking not the banking institutions as we know it. This means we need to follow the customers where they are, understand them better and provide them what they want with efficiency, convenience and without leaving anybody behind,” said Mr Tumwijukye. 

This will help in leveraging the economy of scale and as a result, provide pocket-friendly financial services and save customers from paying more than 110 percent in servicing their loan interests. With such exorbitant bank charges, how can an SME break even?   
He continued: “And so I feel these are the kind of barriers we need to break and I believe we are at a defining moment for banking, and we are happy to be part of making a positive change with the movement we are starting.” 

Regulator’s support 
The Director of National Payment Systems at the Bank of Uganda, Mr Andrew Kawere, in his remarks during the launch of MSACCO, called upon all the market players to support the ongoing initiatives to scale up responsible adoption of digital financial services. 

This, he said, is because of the ability of innovations to transform the financial sector, including the banking industry.  
He, however, warned against greed and overcharging which may stand in the way of the evolving nature of the industry. 

“Bank of Uganda is, for example, concerned that some payers charge exorbitantly high fees which end up as a barrier, especially for the bottom of the pyramid customers. Let me remind you that statistics continue to show a strong preference for low-value transactions,” he said.

The Central Bank believes there is still room for further adoption of digital payments. As the regulator, Central Bank wants industry players to explore and use appealing technologies to the masses particularly those at the bottom of the pyramid. For example, the Bank of Uganda regulatory sandbox is operational and can be used to test innovations and use cases under regulatory oversight.

Bank of Uganda promised to continue providing policy leadership in this area. Last year for example, in consultation with the licensed institutions, the bank developed the e-payments strategy for which Future Links Technologies was among the contributors.
The strategy is anchored on pillars such as the promotion of infrastructure development and Interoperability, fostering Innovations, Competition, Consumer Protection, and digital financial literacy.

As technology continues to define the financial sector, there is an appeal to the industry players to ensure robust platforms and technology that will guard the unsuspecting consumer from widespread digital fraud. 
Bank of Uganda is concerned with the increase in digital fraud which especially targets players in the digital payments space.  And for that, the regulator wants the management of the digital financial service providers to shore up their company’s cyber defenses to guard against cyber fraud and malicious attacks.

“We pledge our commitment to creating an enabling environment for partnerships and product innovations to prosper. Bank of Uganda will continue to support the development of digital payments while providing regulatory oversight to ensure that the attendant risks are appropriately mitigated. 

“A safe and efficient payment system is not only an opportunity to support social economic transformation, but it also supports overall financial stability,” reads the regulator’s statement delivered by Mr Kawere. 


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