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Uganda:With 7,600 agents and over UGX2.5 trillion transacted in 2 years, agent banking is unstoppable; it is the future of banking

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The 2018 Uganda Finscope Survey showed that although access to formal and informal financial services had risen to 78 percent (14.4 million), only 58 percent (10.8 million people), was formal. Even then, of this 58 percent, 43 percent (7.9 million) was associated with mobile money. Only a handful- 11 percent were using Commercial Banks or Micro-Deposit taking institutions. Low usage of formal banks/MDIs was largely due to low distribution- only 695 branches as at 31st December 2018 and therefore high costs of access. In April 2018, the banking industry decided to get together and launch the Agent Banking Company of Uganda which would through a Shared Agent Banking System (SABS) change this, increase penetration of basic banking services and at a reduced cost. Slightly after two years after launch, CEO East Africa, caught up with Richard Yego, the Chief Executive Officer, Agent Banking Company of Uganda to discuss the inroads made thus far, the challenges met, Covid-19 and the future of agent banking in Uganda.

First of all, tell us about the Agent Banking Company of Uganda Limited- who owns it and how is it run?

Agent Banking Company of Uganda Limited (ABC) was incorporated in July 2017 with its offices on Plot 2702, Nyangweso Road, off Kironde Road on Tank-Hill, Muyenga. ABC is a Joint venture entity of the Uganda Bankers’ Association and Eclectics International.

Uganda Bankers Association (UBA) is the umbrella body of Supervised Financial Institutions in Uganda. UBA owns 51% stake raised by its Tier 1 members.

Eclectics International, on the other hand, is a Kenyan Fintech firm in the business of developing and implementation of cutting edge financial services software largely in the African market. Eclectics owns 49% shares in ABC. Eclectics International developed and deployed a robust omnichannel and device agnostic Shared Agent Banking System (SABS) that we are currently operating.

Why was it necessary to structure the company this way?

Following the amendment of the Financial Institutions Act (FIA) of 2004 in February 2016 to provide for Agent Banking, UBA member Banks collectively explored the idea of sharing infrastructure in the process of rolling out Agent Banking in Uganda.

The idea of sharing Software and Agent Network infrastructure was underpinned by the dire need to bring down the cost of rolling out agent banking in Uganda. UBA member banks through their Association, therefore, agreed to invest in a shared platform that they would all connect to deploy Agent Banking and subsequently scale it. This initiative required working with a fintech firm with robust software development and deployment capabilities and this is how Eclectics International emerged as the preferred technology partner of choice.

The partnership between UBA and Eclectics International gave birth to ABC whose mandate is to operate the SABS platform. This requires integrating all UBA member Supervised Financial Institutions as well as key 3rd party partners onto the Shared Agent Banking platform.

It was therefore absolutely crucial that ABC is structured as is to facilitate rapid rollout and scaling Agent Banking services in Uganda with the ultimate objective of enhancing access to Banking services to customers across all connected Banks. The shared platform facilitates interoperability such that customers of all connected banks have access to banking services across the entire Agent network on the SABS platform.

It is now about two and a half years, since you joined ABC first as a Commercial Director in February 2018 as Commercial Director, becoming CEO in June 2019. What would you say are the major achievements that you have accomplished to-date?

First of all, championing the successful deployment and eventual launch of the Shared Agent Banking System (SABS) on 25th April 2020 with 2 banks- Absa  Bank Uganda (Barclays then) and Bank of Africa. We were able to demonstrate to the public that interoperability is possible in that a customer of Bank X can seamlessly be served by an Agent of Bank Y. This was the pioneer Shared Agent Banking platform deployment in Africa.

Since launch day, we have connected 15 more Banks onto the SABS platform taking the current tally to 17. This has connected over 7,600 interoperable Agents enabled to serve customers of all the connected Supervised Financial Institutions.

I have led my team to achieve significant YoY 41 percent growth in agents connected to 7,600 as at June 2020. The cumulative volume of transactions has YoY grown by 400 percent to reach 2.4 million transactions while the cumulative value of transactions has grown YoY by 171 percent to reach UGX2.5 trillion.

KPI As of 30th June 2020 YoY % Growth
Cumulative Number of Interoperable Agents connected 7,600 41%
Cumulative Volume of Transactions (millions) 2.4 400%
Cumulative Value of Transactions (UGX Trillions) 2.5 171%

We have facilitated the migration of a sizeable portion of Banking services away from the banking halls to the agent network. As a result, over 30% of the transactions are now happening outside the banking halls to digital channels.

We have also integrated 5 key third party bill and collections partners on the shared platform that have added value to the customer in terms of convenience in making payments.

Have you been able to bring down the cost of banking for both the banking customers and the banks themselves?

Absolutely. Customers used to travel an average of 50km to access banking services at a bank branch. We have reduced that to just a kilometer or less. Bank agents are now available in the neighborhood of customers. This has reduced the transport fare significantly for the customer. The pricing structure for agent banking is also very affordable (over 50% cheaper) compared to the alternatives in the market.

Banks have been able to save on the cost of rolling out new branches and ATMs in favour of deploying agents who are cheaper and easier to scale. Agents are enabled to facilitate the process of customer account opening. This saves the cost of accessing a bank account.

What challenges did you face when starting this operation in Uganda?

We mainly faced limited 3G and 4G broadband coverage that limited our spread over 2 years ago. Transaction processing in Agent Banking ecosystem thrives in fast internet speeds. Areas with 2G internet coverage impact internet speeds hence affecting processing. We are happy with the government’s broadband policy in place aimed at covering the entire country with full broadband internet.

Low levels of awareness and acceptability of the new channel by customers and agents has also been slow. We still see customers insisting on accessing a bank branch as opposed to using an agent. We have partnered with key development partners such as FSD Uganda, FSD Africa, aBi Trust, GIZ, and most recently IFC to help in bridging this gap. They have supported us in agent training, customer education, and general awareness of this new channel among the population. We continue engaging with our development partners to scale agent banking in the deep rural parts of the country to scale adoption.

How has Covid-19 affected your operations? What lessons have you learned?

There has been a 27% drop in the number of transactions and a 28% fall in the value of transactions in Q2 versus Q1 of 2020.

We also recorded an over 40% drop in the number of Agents opening to serve customers, especially between April and May during the total lockdown. During this period, public and private transport was shut hence making it cumbersome for agents to move to open their premises for business. Shopping malls/arcades were also closed for a while meaning that agents housed in these premises could not open for business.

The key lesson learned has been, that we need to further drive the adoption of more cashless use to even include transactions like funds transfers via mobile banking as well as merchant payments facilitated through SABS platform.

10 years from now, where do you see Agent Banking and what does this mean for brick and mortar banking?

I see 100% adoption of digital banking channels by our partners (agents/merchants), customers and the banks. This will drive cashless transactions using the same POS devices being used for Agent Banking. The concept of 1 POS device serving all customers will rapidly lead to the formalization of the informal sector of the economy thereby harnessing financial inclusion on a wide scale.

We envisage fully-fledged digital bank branches for the future. I also see full interoperability of all payment systems including agent banking, mobile banking, internet banking, mobile money, merchant payments as well as fintech platforms.

I see a robust National Payments System and regional payments systems connecting to facilitate domestic and cross border payments on secure interoperable ecosystems in Uganda and the East African community.

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