Resilient gusts blow the streets of Kampala early in the morning as pedestrians trod across the pavements of Jinja Road towards the prominent Kampala Road, a business hub in the capital.

Along the route hang bank posters from Tropical Bank, Orient Bank to United Bank of Africa. As the sun goes up towards 11:00 hours, there is limited activity around these bank branches - What could be going on? Locals are left bemused. This wasn’t the issue a couple of decades ago.

In these pressing times of booming e-business platforms, smartphones are the new normal. In Kampala, it’s now customary to find a teenager holding a fancy phone, which she most probably owns. This wasn’t the case decades ago when the country was lagging behind in digital migration. Gone are the days when owning a phone was only for the high net worth individuals, and to be specific, elders of the family. The phones were basic with texting and calling functionalities only. They constrained users from enjoying other services like internet access of which Internet is foundation for many other services; banking inclusive. Banking was traditional.

Tracing Uganda’s banking sector origins

When banking was first established in Uganda in 1906, with National Bank of India (later became Grindyls Bank) set up shop. A handful of commercial banks emerged after and towards Uganda’s 1962 independence. Bank of Baroda, Barclays Bank Uganda, Standard Chartered and the Uganda Cooperative Bank opened shop.

Bank business and transactions were done manually at bank branches. At the time, banks had limited service/ product offering. There was a massive gap between the high class and low class groups in accessing banking services as banks were mainly established in high end towns of Kampala, Jinja and Entebbe. Financial inclusion was a stumbling block. The Central Bank of Uganda adopted measures to promote financial inclusion.

By 1970, there was a massive upsurge in numbers of commercial banks with over 290 bank branches established across Uganda. However, by 1987, a 71% drop in figure of branches to only 84 further damaged the progress the economy had realized. Many of the branches were loss making thus pushed out of business. Nevertheless, the numbers regained momentum and have risen by a massive 563.1% to more than 600 branches countrywide. In a 2014 Bank of Uganda’s report on status of financial inclusion, at least 54% of Ugandans had access to banks. The portion has projected towards levels close to 65% in the first quarter of 2017 following further extension of bank services to up country Uganda. Financial inclusion seems to be growing at moderate pace. The easier it is to access a bank branch, the more convenient it is to open an account.

But for banks, more is not merrier. Centenary Rural Development Bank with more than 64 branches countrywide spent a massive Ugx. 113 billion on operating expenses in 2016, most of which were attributed brick and mortar model. Stanbic Bank Uganda recorded a high record Ugx.352 billion in the same period, a bank that boasts of over 93 branches countrywide. Indeed, branch numbers are not as desirable as they seem to the people accessing bank services. No wonder banks are trying to devise innovative ways of cutting down costs.

Opportunely in 2009, MTN Uganda launched MTN Mobile Money. A platform that saw Ugandans who owned phones, specifically MTN at the time, access financial services with just a click. The mobile-telephone based banking product was a prototype following the success of M-pesa (2007), a mobile banking platform in Kenya. By 2010, M-pesa had grown to be the most successful mobile-phone based financial service in the developing world. Airtel and Africell followed with Airtel Money and Africell Money respectively. By 2016, MTN mobile registered a massive 3,456% to 19.6 billion in 2016 from 552,047 subscribers in the year of its inception (2009). This persistent appreciation in mobile money usage bred detrimental impact on bank’s retail business.

The queues in these banks have reduced. Where are all people that previously used to flock banks? Have they resorted to the medieval ways of keeping money in their houses? Should the banks reinforce its financial literacy initiatives? Maybe their message wasn’t clear. Bankers reckoned. The answer was simple and precise to the point, the mobile money craze!

It didn’t take banks a lot of time to realize the great threat of mobile money. The number of customers was tremendously falling as they opted for the much more convenient mobile money, regardless of it being none interest bearing. This accounts for a host of bank’s initiatives to change strategy. Some increased their time deposit rates to encourage savings and channel customers back to banks with hope of making money from their savings. By the end of December 2011, the Term Deposit Receipts (TDRs) had averaged as far high as 23 percent, nearing the highest ever TDR of 25 percent recorded way back in 1992. This however did not deter the ever increasing numbers of mobile money users. Some bankers resorted to very aggressive advertising which proved to be very costly.

Until recently, banks have turned to digital solutions. Like television before, banking is also going digital.

Digital adaption

How do you remain competitive in a highly regulated environment? Banks are now under intense pressure and strict requirements by Bank of Uganda as they look for quick wins to grow profits. In the wake of these stringent compliance measures, telecom companies leveraged on the already established footprint and taped into the financial sector through mobile money. This was a wakeup call for most banks. To stay relevant, banks adopted the digital agenda.

To win in a digital era, you must be innovative. And banks have responded seamlessly to the mobile money threat. Banks partnered with telecom companies to complement financial services offering. Account holders with various banks are in position to withdraw and deposit money from mobile money accounts to their bank accounts and vice-visa. The relationship between banks and technology companies is becoming increasingly collaborative.

As events continue to unfold in the digital landscape, smartphones and, less visibly, cloud computing have transformed people’s daily lives—and hence their use of money. Bank account holders expect to be able to use the powerful computers in their palms to pay for goods or move cash around as easily as they can tweet, stream videos or share photos with friends on Instagram. Corporate customers are equally demanding. Yet banks’ information-technology systems are a curious mixture of the old and rickety and the sleek and modern. Malevolent hackers continually probe for weaknesses as banks are striving to stay ahead. Are banks prepared for the digital era?


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