Uganda banks cry foul over shared plat­form

Lenders ar­gue a 50:50 ra­tio is not enough to meet over­heads

The East African - - FRONT PAGE - By BERNARD BUSUULWA The Eastafrican

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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.

Un­fair

“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

Pic­ture: File

DFCU Bank in Uganda. Agency bank­ing reg­u­la­tions were is­sued by the Min­istry of Fi­nance, Plan­ning and Eco­nomic De­vel­op­ment in July.

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