“If brick and mortar model was a huge success factor for bank operations, Crane Bank wouldn’t have collapsed so suddenly,” noted one bank analysts.

“If banks are to survive the turbulences in the Uganda’s economy, they should adopt low delivery channels with a wide spread to tap into the untapped.” Added, a one bank senior consultant at a top local law firm.

Digital is an easy win for fintech start-ups. Start-ups generally grow fast in areas where there is vacuum either of regulation or competitors and they scale up fast by using technology. In sectors as heavily regulated and scrutinized as banking this is not possible. This gives a leeway for the incumbents – banks. Banking is more about relationship than products. People’s trust allows banks to lend out customer deposits keeping in mind how much is needed to keep normal banking functioning. Startups are more about using technology as disruption which does not always work in matters involving trust which takes time to build.

Banking is also about transactions most of them mundane in nature, technology can reduce the costs associated with these transactions drastically. However these transaction costs are with big banks only not with start-ups hence the development of win-win collaborative relationship between them. This gave raise to the digital agenda.

Do more with a small budget

Succession planning is key for future success of any organization. In 2015, Patrick Mweheire was appointed Chief Executive Officer at Stanbic Bank Uganda. Patrick Mweheire had previously worked as the Head of Corporate and Investment Banking at Stanbic Uganda. Patrick Mweheire had been mentored for the top position for close to a year. He took over from the experienced and knowledgeable Phillip Odera who had been at the country’s largest bank since 2007. Leadership change was seamlessly done at Stanbic Bank without much difficulties – do more with a small budget.

Because Patrick had already been rooted into the bank business, Stanbic Bank’s performance has been outstanding over the years. The bank has registered high margins of profit after tax year –on-year. Operational costs have reduced. And digital banking has been a break through at Stanbic Bank.

Analysts believe digital banking is solution to cost savings. You cannot undermine the fact that automated applications that replaced redundant manual labor indeed cut costs. “Relying on people and stationary takes up a lot of office space running up both energy and storage costs,” said one of the branch managers of Stanbic Bank Uganda, who preferred to remain anonymous. In October 2015, Stanbic Bank launched a digital wallet to enable customers use their phones to make transactions. In 2017 report, Stanbic Bank Uganda reported an 8% drop in operation costs in the year ended 31st July 2017. We cannot overlook digital banking in this positive half year operational expense development. The services that could have been done by a number of employees are now automated and this has considerably downscaled costs.

Moreover, the costs are not variable unlike salary. Most white collar workers do not settle for less. If a banker was employed as a teller, they could add an MBA or any other professional programme and become more expensive to hold. The average salary for an MBA holder in Uganda is about Ugx. 1,500,000 (US$416). So if every employee in the bank in different departments decide to mount on their qualifications, it could be a vulgar cost projection. In these times of minimizing operational costs, banks are not looking to increase pay but improve efficiency. The only way one can attain efficiency without hiking pay is by automating the processes.

Data Analytics experts at Summit Business suggest that digital banking draws on big data and advanced analytics to extend and refine decision making. “Banks like Centenary, Stanbic and Housing Finance have deployed analytics in different sects of their operations from sales, pricing to service provision.” “They can monitor their consumer activity and can now easily tell what their clients prefer the most. Monitoring consumer behavior is key in developing strategy.”

Online banking has improved brand awareness of banks. Almost every bank in Uganda owns a Facebook, Twitter or Instagram page which they can use to boost bank connectivity. According to a report from Mckinsey & Company, a worldwide management consulting firm, digitalization boosts connectivity with not only customers, but also employees and suppliers. “It extends from online interactivity and payment solutions to mobile functionality and opportunities to boost bank brands in social media,” says Henk Broeders, a director in McKinsey, Amsterdam. Companies are constantly looking for ways to spread their brand messages and the easiest way to do so is by using platforms that reach almost half of the country’s population.

They have also backed the milestone in banking for it will boost business efficiency. Uganda’s banks will not only improve interaction with their customers and deliver services instantaneously, but also provides methods for making internal functions more efficient.

In past times, biggest banks were measured by their asset base. However, analysts have divergent views. While some base success on asset value, other base management on least cost expenditure. As of 2016, Stanbic bank Uganda held the biggest asset base of Ugx. 4.5 trillion with Standard Chartered coming in second with Ugx. 2.9 trillion. However, StanChart performed better with less operating expenses of Ugx. 201 billion while Stanbic had 1.7 times more with Ugx.352 billion. This is as a result of StanChart’s move to rampantly close most of its non-performing up-country branches and developed a digital vehicle. Management is always in charge of increasing sales and reducing costs to attain the most desirable profit. Banks with large asset bases continue to dominate the banking sector as they enjoy the economies of large scale. They have a wide spread branch network and therefore accessible.

However, thanks to the digital agenda by other players in the market. People can now access banks from their homes using their phones and computers both online or offline. This poses great threat to banks that have massively spread branches in rural areas at the expense of automation. The branches are burdened by staff costs and yet are not breaking even! The top ten banks with biggest asset base do not appear on the least operating expense top 10 sheet (see chart). Presently, brick and mortar schemes still have competitive advantage but strategists forecast that the model will soon be outpaced by these least operating expense banks who will turn to digital methods to reach these remote populaces. In turn, they will make more profit while spending the least on operations.

Another important factor in digital banking is the multiplier effect. Nothing beams a business man like free leverage. With digital banking, the number of mobile phones being used by the populaces is more less the number of branches each bank has. In previous times, rural people could hardly access banks not because they are not interested but because banks find it hard to open branches in far flung corners of the country and yet they bleed with opportunity. A strong point is Bidi Bidi camp, the biggest refugee camp in the world in Northern Uganda (Featured in Summit Business Oct’17 ‘Prepare for Hunger’ Issue). This would be a catchment area for these banks considering its booming numbers but setting up shop in such remoteness is deemed dangerous. Now that phones and other devices can be used, banks are enjoying a multiplier effect. A person in Bidi Bidi can access services from Bank of India, whose branches are miles away in the city centre of Kampala. This increases the banks’ customer base drastically without it necessarily establishing a branch. All they need is awareness. And an agent for cash deposit or withdrawals who now incurs own cost of a ‘branch!’

In a report from Plant Wellness Way, PWW on unearthing the answers on human error in companies, it was revealed that typical failure rates in business using common work practices range from 10 to 30 errors per hundred opportunities. Also, for those workplaces that are well managed using normal quality management methods have failure rates of 5 to 10 in every hundred opportunities. Imagine this is the anticipation every bank manager has whenever their staff, either a teller or supervisor work out some transaction for a client. With digitalization, Uganda’s banks are set to enjoy spotless bank service and reduced human error. Double checking, external consultation and other error mitigation techniques that waste a lot of time and money will no longer be the need. Not only with automation mitigate error, it will also eliminate repetitive tasks. These are common with tellers that do many redundant tasks. In a survey Summit Business Research carried out in Hoima town, one of the tellers at Centenary Bank confessed to have been stressed out by the many repetitive tasks they were going. “Most times, I take coffee to keep me concentrated,” he said. “Otherwise, you find yourself dossing off.” This could consequently amplify error in their work. This is why banks are quickly grasping to the digital platforms. In October 2017, a one Wahib was intercepted at the border of Busia with over Ugx.189 million of counterfeit money. In August 2016, counterfeit monies worth US$300,000 (Ugx. 780 million) were intercepted in the same district at the Kenya-Uganda border from a Ugandan Adam Bashieja Kushashira. These are some of the many cases of counterfeit money. Some fail, many succeed and this money continues to circulate within the country. This money subsequently reaches banks and if a teller doesn’t recognize it quickly, yields a significant loss to the bank. Digital banking will further mitigate these risks of counterfeit transactions as people need not carry money to banks for these heavy transactions. They could just use their phones to access these services and transfer money. SB analytics believe they now have your undivided attention.


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