ICT Trends and Usage for Financial Services in Uganda

1. ICT Trends and Usage for Financial Services in Uganda ISACA MONTHLY KNOWLEDGE SHARING SESSION JULY 25TH 2012

2. Coverage • Correlation between ICT trends and growth of financial services • Focus on Financial services coverage, products, flexibility, and efficiency

3. What are Financial Services • Financial services include; • Banking • Microfinance • Bureau de change • Insurance • Pension funds • Payment systems • Financial and Capital markets • Presentation will mainly dwell on Banking

4. ICT • ICT covers any product that will store, retrieve, manipulate, transmit or receive information electronically in a digital form. • The traditional computer-based technologies (things you can typically do on a personal computer or using computers at home or at work); and • The more recent, and fast-growing range of digital communication technologies (which allow people and organisations to communicate and share information digitally)

5. The Uganda Experience • Prior to ICT • Fully Paper based banking services, using physical ledgers, Account and Personal detail cards, cheques, savings account customer books, and other hardcopy documents • No records stored electronically • Processing was slow, tedious, prone to errors, with limited access to banking services in terms of coverage, location, and time.

6. …Modern Technologies For Financial Services • Concepts underlying Popular Technologies for financial service delivery; • card payment, eg debit cards, credit cards, fleet cards… • ATMs, • mobile banking, • e-banking/ online banking • branchless banking, and • the newly coming cloud banking.

7. Direct effects of ICT • Contributes to domestic output and • Employment creation • Favours better and larger markets • Increases government revenues • Affects balance of payments

8. Indirect Effects of ICT • Improves firms' productivity • Spurs capital accumulation • Deepens financial inclusion • Favours better and larger markets

9. Modern Technologies For Financial Services • In the past 10-15 years technology in the sector has evolved. Creating a new way of providing financial services such that it is; • convenient, • flexible, • reliable, • efficient and • gives clients not only options, but also improved access to the financial services, Albeit with some challenges e.g ATM frauds.

10. EXAMPLES OF ATM CARD FRAUDS • With the evolution of technology even crime has evolved i.e. ATM card frauds e.g. • Stealing information from cards inserted into the machine • Shoulder surfing the customer's PIN at the ATM • Accidentally or intentionally stocking the ATM with notes in the wrong denomination • To trap the card inside the ATM's card reader with a device often referred to as a Lebanese loop. • To get the customer's bank to issue a new card and stealing it from their mail

11. ICT and Financial Inclusion FI means greater access of households to financial services. • Look at whether ICT development stimulates growth by fostering financial inclusion and • whether the interaction between ICT and financial inclusion facilitate economic growth.

12. Financial Inclusion cont....... • Research has shown that mobile telephone penetration can foster economic growth, not only by facilitating financial inclusion, but also by consolidating the impact of financial inclusion on economic growth. • Through higher mobile penetration, enables easier access to deposits and loans, as better information flows brought by mobiles improves information acquisition of both depositors and financial institutions as well as enhances monitoring.

13. Financial Inclusion cont..... • It indeed reduces the physical constraints and costs brought by distance and time. • Also, better ICT development reduces the cost of financial intermediation and contributes to the emergence of branchless banking services, therefore improving access to finance.

14. MOBILE BANKING • FIs have come up with products and services for their customers to access via their handsets. These include checking account balance, mobile money transfers, paying bills, phone credit top up, etc • With the challenges mobile banking is facing, still it is beneficial to; • the financial institutions, • their clients, as well as • the mobile network operators

15. Mobile Technology Benefits for Financial Institutions • Strengthening customer loyalty by offering new and better services • Attracting new customers to One-on-One bank-customer relationship • Expanding brand presence • Extending a bank’s reach by turning cell phones into ATMs • Increasing market presence using new, flexible and ubiquitous channels

16. … Mobile Technology Benefits for Financial Institutions • Reducing the cost of direct teller interactions while maintaining the level of service • Increasing usage through availability • Providing 24/7 services • Creating direct marketing channels • Creating new revenue sources by offering new transactions

17. Mobile Banking in Uganda –Opportunities, Challenges and Risks • There is a remarkably increasing use of ICT in East Africa and particularly mobile banking (used here interchangeably with mobile payment) most recently through the mobile money service. • In Ug MM’s still in it’s infancy having been introduced by MTN in 2009 following Safaricom’s M-Pesa’s success in Kenya. In 2012 it was reported that mobile banking transactions hit UGX1.5tn (US$500m). Since its introduction in Kenya M-pesa is worth Ksh 135.38bn (US$1.8bn)

18. Mobile Banking in Uganda –Opportunities, Challenges and Risks • Generally, in Africa where less 20% of the population that is economically active has a bank account and latent demand for money services is so high, mobile banking transactions are the most likely to save lives- and economies. • It’s hard to build a sustainable, viable economy when the bulk of the population is unbanked. E.g. its argued that in Uganda, on any given day there is approximately Shs20bn under mattresses.

19. Mobile Banking in Uganda –Opportunities, Challenges and Risks • The mobile banking service presents potential for banks to partner with service providers e.g. cinemas, restaurants, supermarkets, schools, etc to share in the benefits of MM. • ‘ the successful take up of MM in Uganda, clearly demonstrates the demand for easily accessible, secure cash payment services in emerging markets’,

20. Mobile Banking in East Africa –Opportunities, Challenges and Risks • In Uganda, Some Banks has recently partnered with MTN Uganda to offer mobile money services to its customers to all its branches country wide. This is one way other banks can reap from the windfall. • Although some bankers view the new product as competition, it is not and should not be viewed as such because essentially it is filling a gap that has for so long been ignored by the traditional brick and steel banks.

21. Challenges and Risks • No regulatory oversight role by central Bank over mobile service providers yet its emerging as a major payment system. ……Although prior to introduction the product was subjected to a thorough due diligence focused on the requisite legal and regulatory framework, product feasibility, customer ID procedures and product/customer/agent security…

22. …Challenges and Risks • …a legal and regulatory framework is required for mobile banking to protect the interests of consumers and ensure sustainability of the product. • Too little regulation has the potential to kill/ injure an industry.

23. …Challenges and Risks • Although fully fledged mobile banking systems are reported to offer bank grade security and controls, a robust risk management framework needs to be in place to offer some comfort on reliability and sustainability.

24. Advantages of Mobile Banking/ Payment • Less expensive to end users • Generates income for operators (kiosk owners) • Introduces more money into the formal banking system • Improves taxation especially when making payment. • The product has enabled poor and rural dwellers to have access to basic financial services in the face of severely limited banking structures

25. Advantages of Mobile Banking/ Payment • Less time consuming especially time spent for travelling and waiting for the service in queue • It is fast and arguably cheap. • It is safe

26. The Disadvantages • Lack of consumer trust • Lack of standardized user-friendly infrastructure • Devices or network limitations- locks in customers • It may be difficult to integrate mobile banking in legacy (old) systems- makes it expensive. • User comfort: people are still skeptical due to its simplicity. • Lack of scalable solutions across all financial opportunities

27. ... Way Forward • Guaranteed security including authentication and non-repudiation • Maintaining a relatively low cost to both banks and consumers • Ensuring the services are widely accepted and sufficiently penetrate the market.

28. Risks Associated With Mobile Banking In Uganda • Money laundering • Lack of clarity of responsibilities of regulators as more than one regulators may be involved (telephone or Banking regulators). This may lead to failure to regulate the whole or part of the m-banking services. • Facilitate corruption

29. … Risks Associated With Mobile Banking In Tanzania • Unavailable or unreliable mobile banking services may cause severe impact to customers, providers or country economy • Customer errors • Settling disputes • Privacy violation • Incomplete or Failure of transaction delivery • Frauds (agent defrauding the customer e.g. stealing customer money, imposing excessive charges, fake cash-in )

30. … Risks Associated With Mobile Banking In Tanzania • Technology Specific risks • Malware attacks • Eavesdropping on telephone data • Fake authentication of users • Mobile devices may limit users to create PINs that can easily be compromised

31. Thank you for Listening End