Impact of scalable synergies in Uganda’s growing FinTech Industry

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FinTech; the convergence of finance and technology has gained visible attraction in Uganda notably in the second decade of the 21st century. Its rapid growth and popularity is ascribed to the fact that FinTech innovations are consumer facing and directly interact with consumers at scale.

They can be traced to the issuance of credit cards in the 1950s to ease heavy cash usage, the introduction of Automated Teller Machines( ATMs) in the 1960s to replace teller/banks branches, the commencement of electronic stock trading in 1970 which came with introduction of online stock brokerage websites in the 1990s, with the high rate of internet penetration attributed to creation of technology that increased internet speed like 3G, 4G and increased e-commerce and development web-based business models.

Globally, the financial industry is experiencing remarkable evolution in the delivery of services, owing to increasing digitalization. The digitalization of finance has been propelled by Financial Technology (FinTech) innovations. FinTech is driven by increasing consumer’s preference and demand for convenience, speed and lower cost of financial services.

It also advances in enabling technologies for example proliferation of the internet, mobile technology, biometric identification, computer processing power and data capacity.

Most fundamental technologies enabling FinTech include mobile access and the internet, distributed computing, artificial intelligence and big data together with cryptography and biometrics technology. These forces have therefore disrupted the financial system.


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Distributed ledger technologies for example enhance transparency and verifiability, as transactions in the distributed ledger are immutable whose components facilitate data storage, secure record keeping and update electronic transactions.

The FinTech market in Uganda is dominated primarily by mobile money service providers. The ecosystem is dominated primarily by mobile network operators, commercial bank and non-bank financial institutions, technology providers and the Central bank of Uganda. The combination of these stake holders in the industry can spur the growth of FinTech industry in Uganda.

For example, mobile money services were launched in Uganda in March, 2009 though a partnership between Stanbic Bank and MTN Uganda which has enhanced financial inclusion.

A case in point: Government’s Social Assistance Grants for Empowerment Program was Uganda’s major cash transfer initiative where MTN was contracted to transfer cash to beneficiaries using electronic transfers. These key players must therefore see themselves as partners rather than competitors.

Mobile Network Operators and Financial Institutions

The integration between Mobile Money Operators and Financial Institutions is key in the growth of FinTech industry. Africa Development Bank statistics indicate that financial penetration remains low in Africa with less than a quarter of sub-Saharan Africa’s population having access to a formal bank account.

In Uganda, formal financial institutions like commercial banks only serve 14% of the rural population and 62% of the population has no access to financial services whatsoever according to ABC capital Bank.

According to Uganda Communications Commission’s Annual performance report of December 2019, there was an impressive growth in mobile money subscriptions and internet subscriptions. Uganda registered 15.4 million internet subscribers in October 2019, mobile subscriptions stood at 26.7 million served by a network of 19,609 km of terrestrial back haul fiber while mobile money accounts stood at 27.1 million accounts by September 2019.

These two sets of statistics are key: whereas the population has no access to formal financial institutions, there’s a lot of untapped potential in the 27.1 million mobile subscriptions who could access banks through Open bank systems. The collaboration of the two has led to FinTech growth in Uganda, For example mobile money transactions hit Ugandan Shillings 7.2 trillion on March, 2020 from Shillings 3.4 trillion in 2016 with internet users increasing to 11 million in March 2020. This is key in transiting Uganda into a cashless economy.

The integration of the two is a prerequisite for growth because whereas financial institutions hold funds through customer deposits, mobile payments and transfers are preferred and have gained trust and their operations will be controlled by the Central Bank under the newly enacted National Payments Systems Act.

Through partnership, financial institutions are able to reach customers remotely, something they would haven’t done or would be extremely costly for them.  For example, the Uganda Bankers’ Association and Financial Service Providers Association have signed a strategic collaboration agreement aimed at promoting innovation, knowledge sharing professional practices in the development of digital financial services in Uganda.

The relationship between the two players has been smooth from a start unlike Kenya’s M-Pesa which was first resisted by commercial banks. As the collaboration advances, it is expected that more fully digital banks will emerge considering the dominant youth preference to mobile banking. South Africa’s Tyme Bank through TymeCoach App gives customers free access to their credit report, supported by useful tips on how to make better decisions about money.

Digital Credit providers and Financial Institutions

A new wave of digital credit products has entered the digital financial services in the recent years. These credit services differ from the traditional approach to credit by offering loans to customers remotely, automatically eliminating person to person interaction.

MTN’s Mokash was the first digital credit product to be offered in the Ugandan market. It was as a result of a partnership with MTN Uganda and Commercial Bank of Africa (CBA). Under the Mobile money regulations, Mobile Money services may only be offered by or in partnership with financial institutions.

In a related development, MTN in partnership with Mastercard and United Bank of Africa announced a service where customers will be able to make online payments or use a virtual shop at the vast network of global outlets accepting Mastercard payments. Here, a debit card is linked to a bank account and a customer can make payment using a mobile USSD number to make payment.

The growth of these digital lending platforms have enabled access to credit to many low income Ugandans who would have experienced great difficulties in accessing credit from traditional lenders directly. Uganda’s Mokash registered savings of about 4 billion Uganda shillings while disbursing about 2 billion in loans in the first three months of operation. The rapid uptake demonstrates Uganda’s adaptability to new technologies

FinTech Innovators and Bank of Uganda

Prior to the National Payments Systems Act, the Central Bank of Uganda – Bank of Uganda had no supervisory powers on FinTech innovators. This was primarily because there was no regulations governing digital payments. There was need to define the relationship between industry players and regulators, but be as it may, these innovators would never test the capacity of their innovations before they are rolled out to consumers.

The National Payment Systems Act has provided for sandboxes. A sandbox, according to Section 2 of the National Payment Systems Act refers to a temporary experiment of innovative financial products, services, business models or delivery mechanisms in the payment system ecosystem.

Section 16 (1) gives the central bank power to establish a regulatory sandbox framework for purposes of governing the manner in which a person may obtain limited access to the payment ecosystem to test innovative financial products without obtaining a licence. The application is made to Bank of Uganda. This will see Bank of Uganda regulate digital products from the start.

Also Read: Regulation of Fintechs in Uganda: Lessons for the Bank of Uganda

This convenience of FinTech products comes with a heavy responsibility of Data protection and Privacy on FinTech companies. Recently, Brazil’s Central Bank suspended WhatsApp payments to evaluate the country’s payment system and to determine whether the payment systems meet data privacy regulations. The National Payment Systems Act has no express provisions on customer data protection, but the protection could be inferred from the Data Protection and privacy Act, 2019.

Telecommunication companies in Uganda have no good history of data protection. Recently, the High Court in Uganda awarded MTN’s customer 10 million shillings after the company released confidential information on him, acting on a fake court order. Court held that: telecommunication companies hold customers’ data in trust and confidence and therefore must never be released unless there is a lawful court order.

Kenya has not been any different. The Court of Appeal allowed the Communications Authority of Kenya to install a Mobile Management System (DMS) in telecommunication companies’ systems, the effect of this on data protection can only be assumed.

Section 68 of the National Payment Systems Act compels payment service providers or a payment system operator to maintain a primary data center in relation to payment systems in Uganda. The law doesn’t specify for how long.

But FinTech regulation is moving in the right direction towards paperless money. Entebbe Zoo recently announced that it would only receive payments through electronic means. It is high time other sectors picked up so as to enable the country move closer to eliminating notes and coins.

FinTech growth might see greater appreciation of virtual currencies like Bitcoin and Facebook’s Libra though these have attracted strong criticisms from central banks, although it is anticipated that central banks will begin to take the creation of closed loop.

Tunisia has issued eDinar as the Government issued Digital Currency. We look forward to the future with great optimism.

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