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Uganda’s bank platform posted double digit growth

Uganda’s bank platform posted double digit growthCentenary Bank Uganda. The sharp growth in transaction activity on Interswitch system has been attributed to the entry of Centenary Bank onto the platform. PHOTO | FILE 

By Bernard Busuulwa

The Interswitch platform, Uganda’s pioneer banking switch, posted double digit growth between 2015 and 2016, in spite of fewer transactions at the ATMs connected to the platform.

However, the absence of innovative products remains a barrier to market penetration. Data from the latest financial stability report for 2016, published by the Bank of Uganda (BoU), shows that the transaction value grew by 24.3 per cent from Ush129.8 billion ($35 million) at the end of June 2015, to Ush161.3 billion ($43.9 million) by the end of June 2016.

Total transactions on the platform rose by 39.2 per cent, from 1.6 million by the end of June 2015, to 2.2 million at the end of June 2016. The sharp growth in transaction activity was attributed to the entry of Centenary Bank onto the platform in 2014.

Centenary Bank, one of the top five lenders by assets in Uganda, has some 57 branches all over the country and 96 ATMs with a customer base of more than 1.3 million.

The Interswitch platform had 10 commercial banks, two credit institutions and one micro-deposit taking institution (MDI) by the end of June 2016. There are 25 licensed commercial banks in Uganda, three credit institutions and four MDIs supervised by the Central Bank. Interswitch Ltd, a Nigerian payments solutions provider, acquired majority shares in Bankom Uganda Ltd in 2010.

Expansion strategy

The parent company is focusing on its pan-African expansion strategy.

“The group has already established operations in Gambia. It is also targeting Tanzania and Zambia in the near future. This strategy has indirectly diverted some attention away from the local market in Uganda. We need more big banks on our platform in order to boost transaction volumes and values,” said a senior executive at Interswitch Uganda who requested anonymity. The platform also offers cash withdrawal for registered MTN Mobile Money customers at select service points.

“The switch operator should invest in innovative products like school fees payment solutions and agent banking channels. The idea of sharing ATM networks has lost appeal among big banks because there is a greater need to concentrate on digital payment tools, and reduce cash management costs and related security risks. We spend a fortune carrying money from northern Uganda to BoU every week. Under these conditions, there is opportunity for cashless payments in an economy dominated by cash transactions estimated at 95 per cent of all transactions,” said Patrick Mweheire, the managing director of Stanbic Bank Uganda.

Interswitch’s reluctance to introduce a cheap and efficient card-driven payments system in the local market, coupled with Visa Card’s prohibitive transaction charges, have denied local consumers access to cost effective and cashless payments services, observers say.

“The Interswitch platform is still viable for local banks because it shares infrastructure and cuts expansion costs. We are addressing the gap in cashless payments through the rollout of efficient mobile and online banking channels,” said Fabian Kasi, managing director of Centenary Bank Ltd.

Visa Card plans to roll out a cheaper payments window for retail clients. Under the new strategy, to be piloted in Kenya this year, all transactions below $50 will be charged a flat fee of Ksh200 ($1.9). The existing fee structure subjects all transactions to 10 per cent of the value.

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