Uganda banks cry foul over shared platform
Lenders argue a 50:50 ratio is not enough to meet overheads
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Ugandan banks are dissatisfied with a revenue sharing format linked to a joint agency banking platform designed by the industry lobby.
The dispute may now delay the rollout of agency banking services and also test banks’ appetite for shared business infrastructure.
The Uganda Bankers Association (UBA) in partnership with Eclectic International, a financial services company that specialises in the development and management of transaction platforms in more than five countries, has invested in a joint agency banking tool meant to serve the country’s 24 commercial banks. This rare move is aimed at achieving cost-effective delivery of agent banking services.
This initiative represents a major shift from the “do it yourself” attitude that has dominated the local banking industry for many years, leading to rapid expansion of branch and Automated Teller Machine (ATM) networks and relatively high operating costs.
But depressed economic growth and the rise of new, cutting edge financial technology that allows consumers to transact between mobile money and banking channels has forced banks to embrace cheaper, shared platforms that suffer few disruptions.
Though local banks contributed capital towards the establishment of the agency banking platform based on their asset values, figures related to specific contributions made by each lender, projected growth in volume and value of transactions processed on the platform and expected return on investment were not available.
However, some commercial banks have objected to a 50:50 revenue sharing ratio proposed by UBA and Eclectic International for every transaction done on the joint agency banking platform. The disgruntled players argue this ratio is insufficient to cater for commission charges due to agents and also secure a return on investment.
Whereas agents are mandat- ed to serve clients belonging to different banks that subscribe to this platform, each lender is required to pay individual agents for transactions done on its behalf, sources said.
The aggrieved banks feel a 60:40 revenue-sharing ratio would offer more room to absorb agents’ commissions, operational overhead costs and yield a handsome return on investment.
“It would be unfair to banks to give away a bigger revenue margin to a platform operator and their principal after sinking so much money in their operations. We believe a 60: 40 revenue sharing ratio in favour of the banks would offer us a better deal,” said a senior executive at DFCU Bank Ltd who requested anonymity, citing confidentiality obligations.
Agency banking and bancassurance regulations were issued by the Ministry of Finance, Planning and Economic Development in July this year, following amendments to the Financial Institutions Act (FIA) of 2004 at the beginning of 2016. Now, even the issuance of Islamic banking regulations provided for in the amendments remain uncertain.
While big banks that own large branch networks are said to be keen on reaping higher revenue margins from the agency banking platform, smaller lenders seem more interested in widening access to banking services among niche clients than enjoying huge income margins derived from the platform.
“We have had a number of meetings with the UBA team over the matter but there is no compromise yet,” said Sam Ntulume, the managing director at NC Bank Uganda, a small lender with less than five branches in its portfolio.
Mr Ntulume added: The issue of revenue sharing is influenced by two schools of thought. Some banks with many branches are focused on a wide foot print established by the joint agency banking platform operator that will attract massive transaction volumes and enable them close many branches and cut down on running costs. On the other hand, small banks like us prefer securing better access to transaction outlets for our clients in strategic places due to few branch networks. Making money off the agency banking platform is therefore irrelevant to us.”
UBA’S executive director Wilbrod Owor said the institution was committed to the effective rollout of the joint agency banking platform.
“The banks have invested in it and are eagerly waiting for its commissioning. The amount of money contributed by local banks is private information held by our members and is not for public consumption,” he said.
Agency banking promises wider penetration for Uganda’s banking industry. Currently, there are about six million bank accounts held in the country out of a total population of more than 34.6 million people.
However, poor quality financial reporting among targeted agents including supermarkets, mobile money vendors, fuel stations, restaurants and retail shops — involving the use of multiple financial records meant for shareholders, banks and the tax authority respectively — poses a challenge to commercial banks seeking growth opportunities in agency banking, experts claim.
It would be unfair to banks to give away a bigger revenue margin to a platform operator after sinking so much money in their operations.” Senior executive, DFCU Bank Ltd
DFCU Bank in Uganda. Agency banking regulations were issued by the Ministry of Finance, Planning and Economic Development in July.