To be competitive, the bank of the future will need to embrace emerging technologies, remain flexible to adopt evolving business models, and put customers at the center of every strategy.
Faced with the evolution of consumer expectations, banks must put in place strategies adapted to the evolution of the banking sector.
According to one player in the financial sector, the future of financial institutions will largely be shaped by empowered consumers.
“There is a very good sign that the financial system and even banking will redefine itself due to the empowerment of the end consumer,” said Future Links Technologies Managing Director Mr. Vincent Tumwijukye.
He added: “I believe that over the next five years, we have to redefine banking not according to the structures of banks, but rather according to the purpose of banking. And for our case, it is becoming more and more a reality.
Speaking in an interview last week after the launch of MSACCO, which aims to democratize financial services through an efficient community marketplace, Mr Tumwijukye said that the days spent physically dealing with customers in the lobby of the bank quickly became useless and archaic.
In a fast-paced economy, queuing for banking services is not only considered a complete waste of time, but also expensive.
This may explain why Uganda’s financial system, according to a report titled; Financial Innovation in Uganda: Evolution, Impact, and Prospects, written by researcher Doreen Katangaza Rubatsimbira, is characterized by a high share of the population without access to banking services, a very low private credit-to-GDP ratio and very low real lending rates. students.
This is in addition to the lack of credit for small and medium-sized enterprises (SMEs) and small-scale farmers, the high operating costs of banks and the lack of long-term capital for business investments, among others.
The banking sector in Uganda is not averse to technology. The industry has evolved towards the use of automated teller machines (ATMs), mobile banking, online banking and bank branches have changed the delivery of financial services beyond the traditional practice of physically going to the bank lobby to make transactions.
The sector has also broadened the reach of financial institutions and accelerated the accessibility of financial services. It is a revolution in itself.
Tellingly perhaps, not until the innovation of mobile money hit the scene in 2009, offering mobile payment services that have the power of accessibility, inclusion and affordability have set highlight the true face and power of a consumer long excluded from financial inclusion.
As of June 30, 2022, the value of mobile money transactions has increased significantly by 38%, from 113.38 trillion shillings in June 2021 to 156 trillion shillings in 2022, while transaction volume has increased by 22% , growing from 3.9 billion transactions to 4.8 billion transactions over the same period. .
Additionally, during the same six-month period, a total of Shs.9.3 trillion in around 39 million transactions were transferred by payment system operators such as FutureLink. This in many ways illustrates a parody of the traditional banking system and the rigidities that come with it to adapt quickly.
The growth of mobile money has been stunning, with the number of registered subscribers growing from just over half a million in 2009 to 21 million in 2015 and 28 million in March 2020.
In February 2021, the number of registered mobile money customers in Uganda stood at more than 30 million, according to data from the telecommunications sector, or about three-quarters of the country’s population.
“There is a clear indication that we should focus on the purpose of banking and not banking institutions as we know them. This means we need to follow customers where they are, understand them better and deliver what they want with efficiency, convenience and without leaving anyone behind,” said Mr. Tumwijukye.
This will help to take advantage of economies of scale and hence provide user-friendly financial services and avoid customers paying more than 110% for servicing their loan interest. With such exorbitant bank charges, how can an SME break even?
He continued: “And so I think those are the kind of hurdles that we need to break down and I think we’re at a watershed moment for the banking industry, and we’re happy to be part of a positive change with the movement we are beginning.”
The Director of National Payments Systems at Bank of Uganda, Mr. Andrew Kawere, in his remarks at the launch of MSACCO, called on all market players to support ongoing initiatives to scale up responsible adoption of financial services digital.
This, he said, is due to the ability of innovations to transform the financial sector, including the banking sector.
He cautioned, however, that greed and overpricing could stand in the way of the evolving nature of the industry.
“Bank of Uganda is, for example, concerned that some payers charge exorbitant fees which end up being a barrier, especially for customers at the bottom of the pyramid. Let me remind you that the statistics continue to show a strong preference for low value transactions,” he said.
The Central Bank believes there is still room for further adoption of digital payments. As a regulator, the Central Bank wants industry players to explore and use technologies that appeal to the masses, especially those at the bottom of the pyramid. For example, the Bank of Uganda’s regulatory sandbox is operational and can be used to test innovations and use cases under regulatory oversight.
The Bank of Uganda has pledged to continue to provide political leadership in this area. Last year, for example, in consultation with approved institutions, the bank developed the electronic payments strategy for which Future Links Technologies was among the contributors.
The strategy is anchored on pillars such as promoting infrastructure development and interoperability, promoting innovations, competition, consumer protection and digital financial literacy.
As technology continues to define the financial industry, industry players are called upon to ensure robust platforms and technology that will protect the unsuspecting consumer from widespread digital fraud.
Bank of Uganda is concerned about the increase in digital fraud which particularly targets players in the digital payments space. And for that, the regulator wants the management of digital financial service providers to strengthen their company’s cyber defenses to guard against cyber fraud and malicious attacks.
“We are committed to creating an environment where partnerships and product innovation thrive. The Bank of Uganda will continue to support the development of digital payments while providing regulatory oversight to ensure that the associated risks are appropriately mitigated.
“A safe and efficient payment system is not only an opportunity to support socio-economic transformation, but it also supports overall financial stability,” reads the regulator’s statement delivered by Mr. Kawere.