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Commercial banks feel pressure from mobile money growth

Commercial banks are starting to feel the pressure from the emergence of financial technology firms as banking halls turn empty and brick-and-mortar branches get closed.

Many banks are now closing a couple of branches, in the process laying off staff, as part of managing their costs in what has become a competitive environment with new innovations in the mobile phone space.  

Fintechs, as these companies are known, have introduced new platforms where customers can pay for bills such as school fees over the phone.

Lipa Mobile, for instance, allows parents to instantly pay their children’s schools fees without visiting the banks. James Wampamba, the business development manager at Lipa Mobile, said “there is a need for both schools and parents to cut on their budgets.”

Mobile money customers making transactions 

According to the 2016 BOU supervision report, the number of commercial branches reduced from 573 in 2015 down to 570 in 2016, the first drop in the recent past.

Other bank branches were simply merged to cut back on high operational costs as fintech start-ups expanded their presence.

For example, Equity bank, transferred its Masindi branch to Hoima, its Tororo branch to Mbale and the Jinja road branch in Kampala to Oasis branch. Stanbic Uganda also merged the Bushenyi branch with Ishaka branch.

On the other hand, the pressure from fintechs is leaving commercial banks with no choice but to innovate and invest in digital solutions.

For instance, in 2016, dfcu invested nearly Shs 3.3bn to upgrade its core banking system. Other banks such as Centenary bank, KCB Group and Stanbic bank have equally invested heavily to upgrade their core systems.

Speaking recently during a FinTech workshop, William Sekabembe, the executive director of dfcu bank, said: “One of the biggest challenges that commercial banks are facing is inactivity of the [bank] accounts.”

Uganda Communications Commission’s 2015/16 annual market and industry report indicates mobile money telephone lines increased to 21.5 million as at the end of 2016, from 21.1 million the previous year.

As a result, the annual amount of money transferred through mobile money totaled Shs 43.83tn in 2016, up from Shs 32.7tn in 2015.

BOU attributed the growth to the convenience of the platform that allows users to send money at their own time of convenience.

alitwaha@observer.ug

© 2016 Observer Media Ltd