Money Transfers in Uganda

allAfrica.com: Uganda: Telecom Money Transfer Tilts Market

This article from AllAfrica.com provides an intersting insite into the current state of payments in Uganda. It is well worth a read. To access the original please click on the title post.

Kampala — Six months since the introduction of mobile money transfer, MTN and Zain have registered about 250,000 clients onto the mobile money transfer service moving over sh40b in transactions.

The two telecom companies' officials confirm that only the transactional limitation of sh1m seems to be standing in the way of the service which has tilted the market away from the traditional service providers.

Although figures are scanty about the actual market command of each player, there is ample evidence that MTN mobile money and Zain's Zap have eaten into the market share of traditional money transfer services of Western Union and MoneyGram as well as banks. MTN alone moves an average of sh6b monthly, according to Richard Mwami, MTN general manager, public access.
While Zain offers a diverse platform in which customers are able to merchandise, top up airtime and transfer money.

"The next phase which will soon be unveiled will see customers able to synchronise their mobile phone banking platform with their bank accounts with ZAP, " said George Buza, Zain's head of marketing.

The emerging dominance of the two products illustrates the thirst the market has for innovative products that make life easy.

Services like MoneyGram and Western Union have limited agents across the country.
Western Union, for instance, only has seven agent banks - Barclays, Ecobank, Centenary, Diamond Trust, Post, KCB and Crane Bank and a few sub agents.

On the other hand, there are hundreds of mobile money agents in all street corners across the country.

According to Juma Walusimbi, the communications director of Bank of Uganda, Western Union and MoneyGram were given a go ahead to operate under the financial institutions act because they are operating under licensed financial institutions.

"They presented their accounting and operational systems which ensured that they have audit trails and are safe," said Walusimbi.

But Walusimbi feels exclusivity rights on the two companies constrains the financial institutions that want to work with others.

"For instance, if bank A is working with Western Union, they cannot be allowed to work with MoneyGram," said Walusimbi.

Pride microfinance, for instance, falls under Crane bank which limits the amount of money Pride microfinance can collect as a full agent. Yet the microfinance firm is one of the most active branches, according to sources.

MoneyGram and Western Union international are reportedly reluctant in licensing new agents because of the added workload like supervision, training and hiring added workforce.

There are now six registered and operating telecom companies, two of who are offering the money transfer service. The benefits of the service have been boosted by the failure of commercial banks now numbering 21 to translate their services into everyday benefits to the common man.

Interest rates on savings are in point decimals while borrowing rates in Uganda are among the highest in the region. Also, inflation, both in the past (single digit) and present (at 14.5% in September) is way above the interest rates offered by banks for deposits. This means your meager savings in the bank's are simply wiped off by the high inflation.

"People do not save because there are no benefits to saving," said an expatriate working in Uganda.

Banks have remained largely urban based capturing just about 15% of the entire population.
The electronic funds transfer (EFT) and the real time gross settlement (RTGS) offered by banks are expensive, lengthy and uncompetitive. EFTs charges range from sh2,500 to sh10, 000 and take about two days, while RTGS charge upto sh15, 000.

"These two need to lower costs. But there is still business for everyone," cautioned Walusimbi.
In Kenya, the central bank said nearly half (47%) of all money transfers in Kenya are taking place through the mobile phones.

Although a major revolution in the money transfer business, mobile money has shortfalls. There are reports that agents sometimes run out of cash which creates lapses in the smooth running of the service. Also operators decry the lack of a harmonised identification system in Uganda like it is in Kenya and Tanzania.

"Keeping in consideration the sensitivity around money in Uganda, the slow pace at which people have embraced the use of this service in their day-to-day lives and the lack of a national/formal identification that restricts the acquisition of even more subscribers onto the mobile money service," said Mwami.

Leaving the responsibility of settling all claims by agents with little deposits in the rural areas are a burden and have limited growth of the service.

Will telecoms provide money storage as the banks do?

Isaac Nsereko, MTN chief marketing officer, says in the foreseeable future, it is very unlikely that telecom firms will undertake full banking roles like accepting deposits and extending credit.
"What I see more is collaboration on transfer and payment with the banks," said Nsereko.
In this arrangement, the mobile phone will continue to offer the infrastructure.

MoneyGram and Western Union have remained competitive by mainly exploiting strong brand presence and a public that has for long understood their modus operandi.

The mobile money service has clearly redrawn the competition lines with the traditional players.