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Lack of national switch distorting digital payments, study says 

The absence of a national payment switch has seen fintechs come up with scattered charges. Photo / File  

What you need to know:

  • The absence of the national payment switch has seen the financial technology sector structure scattered fees that are not aligned with consumer needs 

A study by MicroPay, a financial technology (fintech) company, has indicated that the absence of a national payments switch to align fees on payments and money transfers continues to be a serious setback to the growth of the fintechs sector in Uganda.

The findings of the study note that the national payment switch would enable integration of multiple financial institutions, fintechs, billers or aggregators, and other digital service providers to provide a seamless customer experience and increase uptake of digital financial services.

However, its absence has seen the financial technology sector structure scattered fees that are not aligned with consumer needs. 

“The payment switch routes individual transaction settlement requests for the bank to a central switch, instead of being routed through the multiple international card schemes,” the study indicates, noting that the switch provides a single interface with global payment systems and processors that enter into an agreement with it for transaction processing of their locally issued cards.

The Central Bank has over the last three years attempted to establish a national payment switch, going up to the level of procuring service providers, but the process, according to the Bank of Uganda 2023/24 Annual Report was unceremoniously canceled .  

In January, Bank of Uganda had published a list of nine firms that had been shortlisted for provision of the national payment switch.

However, not much has been heard about the matter since. In May, without giving more details, Bank of Uganda indicated it was in the process of inviting new bids.

Mr Grace Stuart Ndareeba, the MicroPay chief executive officer, said the national payment system would save fintechs and other stakeholders in the payments and money transfer ecosystem a lot of expenses, with mobile money and other fintech transactions channeled through the Central Bank at a minimal or zero cost. Transactions are currently channeled through commercial banks that institute different fees.

“If government can introduce the national payments switch, financial technology companies can compete with multi-nationals as cost of doing business would have reduced,” Mr Ndareeba said, urging government to expedite the creation of an entity that would ensure that mobile money services are not used by monopolistic multinationals to discourage competition.

He also stressed the need to bring down prices of internet, which he said, remains key in transacting in mobile money and bank transactions.