ICT Trends and Usage for Financial
Services in Uganda
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ISACA MONTHLY KNOWLEDGE SHARING
SESSION JULY 25TH 2012
Coverage
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Correlation between ICT trends and growth of
financial services
Focus on Financial services coverage, products,
flexibility, and efficiency
What are Financial Services
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Financial services include;
 Banking
 Microfinance
 Bureau
de change
 Insurance
 Pension funds
 Payment systems
 Financial and Capital markets
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Presentation will mainly dwell on Banking
ICT
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ICT covers any product that will store, retrieve,
manipulate, transmit or receive information
electronically in a digital form.
The traditional computer-based technologies
(things you can typically do on a personal computer
or using computers at home or at work); and
The more recent, and fast-growing range of digital
communication technologies (which allow people
and organisations to communicate and share
information digitally)
The Uganda Experience
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Prior to ICT
 Fully
Paper based banking services, using physical
ledgers, Account and Personal detail cards, cheques,
savings account customer books, and other hardcopy
documents
 No records stored electronically
 Processing was slow, tedious, prone to errors, with
limited access to banking services in terms of coverage,
location, and time.
…Modern Technologies For Financial Services
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Concepts underlying Popular Technologies for
financial service delivery;
 card
payment, eg debit cards, credit cards, fleet
cards…
 ATMs,
 mobile banking,
 e-banking/ online banking
 branchless banking, and
 the newly coming cloud banking.
Direct effects of ICT
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Contributes to domestic output and
Employment creation
Favours better and larger markets
Increases government revenues
Affects balance of payments
Indirect Effects of ICT
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Improves firms' productivity
Spurs capital accumulation
Deepens financial inclusion
Favours better and larger markets
Modern Technologies For Financial Services
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In the past 10-15 years technology in the sector has
evolved. Creating a new way of providing financial
services such that it is;
 convenient,
 flexible,
 reliable,
 efficient
and
 gives clients not only options, but also improved access
to the financial services, Albeit with some challenges
e.g ATM frauds.
EXAMPLES OF ATM CARD FRAUDS
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With the evolution of technology even crime has evolved
i.e. ATM card frauds e.g.
Stealing information from cards inserted into the machine
Shoulder surfing the customer's PIN at the ATM
Accidentally or intentionally stocking the ATM with notes in
the wrong denomination
To trap the card inside the ATM's card reader with a device
often referred to as a Lebanese loop.
To get the customer's bank to issue a new card and stealing
it from their mail
ICT and Financial Inclusion
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FI means greater access of households to financial
services.
 Look at whether ICT development stimulates growth
by fostering financial inclusion and
 whether the interaction between ICT and financial
inclusion facilitate economic growth.
Financial Inclusion cont.......
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Research has shown that mobile telephone
penetration can foster economic growth, not only by
facilitating financial inclusion, but also by
consolidating the impact of financial inclusion on
economic growth.
Through higher mobile penetration, enables easier
access to deposits and loans, as better information
flows brought by mobiles improves information
acquisition of both depositors and financial
institutions as well as enhances monitoring.
Financial Inclusion cont.....
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It indeed reduces the physical constraints and costs
brought by distance and time.
Also, better ICT development reduces the cost of
financial intermediation and contributes to the
emergence of branchless banking services,
therefore improving access to finance.
MOBILE BANKING
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FIs have come up with products and services for
their customers to access via their handsets. These
include checking account balance, mobile money
transfers, paying bills, phone credit top up, etc
With the challenges mobile banking is facing, still it
is beneficial to;
 the
financial institutions,
 their clients, as well as
 the mobile network operators
Mobile Technology Benefits for Financial Institutions
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Strengthening customer loyalty by offering new and
better services
Attracting new customers to One-on-One bankcustomer relationship
Expanding brand presence
Extending a bank’s reach by turning cell phones into
ATMs
Increasing market presence using new, flexible and
ubiquitous channels
… Mobile Technology Benefits for Financial Institutions
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Reducing the cost of direct teller interactions while
maintaining the level of service
Increasing usage through availability
Providing 24/7 services
Creating direct marketing channels
Creating new revenue sources by offering new
transactions
Mobile Banking in Uganda –Opportunities, Challenges and
Risks
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There is a remarkably increasing use of ICT in East
Africa and particularly mobile banking (used here
interchangeably with mobile payment) most recently
through the mobile money service.
In Ug MM’s still in it’s infancy having been
introduced by MTN in 2009 following Safaricom’s
M-Pesa’s success in Kenya. In 2012 it was reported
that mobile banking transactions hit UGX1.5tn
(US$500m). Since its introduction in Kenya M-pesa is
worth Ksh 135.38bn (US$1.8bn)
Mobile Banking in Uganda –Opportunities, Challenges and
Risks
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Generally, in Africa where less 20% of the
population that is economically active has a bank
account and latent demand for money services is so
high, mobile banking transactions are the most likely
to save lives- and economies.
It’s hard to build a sustainable, viable economy
when the bulk of the population is unbanked. E.g. its
argued that in Uganda, on any given day there is
approximately Shs20bn under mattresses.
Mobile Banking in Uganda –Opportunities, Challenges and
Risks
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The mobile banking service presents potential for
banks to partner with service providers e.g.
cinemas, restaurants, supermarkets, schools, etc to
share in the benefits of MM.
‘ the successful take up of MM in Uganda, clearly
demonstrates the demand for easily accessible,
secure cash payment services in emerging markets’,
Mobile Banking in East Africa –Opportunities, Challenges and
Risks
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In Uganda, Some Banks has recently partnered with
MTN Uganda to offer mobile money services to its
customers to all its branches country wide. This is
one way other banks can reap from the windfall.
Although some bankers view the new product as
competition, it is not and should not be viewed as
such because essentially it is filling a gap that has
for so long been ignored by the traditional brick
and steel banks.
Challenges and Risks
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No regulatory oversight role by central Bank over
mobile service providers yet its emerging as a
major payment system.
……Although prior to introduction the product was
subjected to a thorough due diligence focused on
the requisite legal and regulatory framework,
product feasibility, customer ID procedures and
product/customer/agent security…
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…Challenges and Risks
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…a legal and regulatory framework is required for
mobile banking to protect the interests of consumers
and ensure sustainability of the product.
Too little regulation has the potential to kill/ injure
an industry.
…Challenges and Risks
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Although fully fledged mobile banking systems are
reported to offer bank grade security and controls,
a robust risk management framework needs to be in
place to offer some comfort on reliability and
sustainability.
Advantages of Mobile Banking/ Payment
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Less expensive to end users
Generates income for operators (kiosk owners)
Introduces more money into the formal banking
system
Improves taxation especially when making payment.
The product has enabled poor and rural dwellers to
have access to basic financial services in the face of
severely limited banking structures
Advantages of Mobile Banking/ Payment
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Less time consuming especially time spent for
travelling and waiting for the service in queue
It is fast and arguably cheap.
It is safe
The Disadvantages
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Lack of consumer trust
Lack of standardized user-friendly infrastructure
Devices or network limitations- locks in customers
It may be difficult to integrate mobile banking in
legacy (old) systems- makes it expensive.
User comfort: people are still skeptical due to its
simplicity.
Lack of scalable solutions across all financial
opportunities
... Way Forward
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Guaranteed security including authentication and nonrepudiation
Maintaining a relatively low cost to both banks and
consumers
Ensuring the services are widely accepted and
sufficiently penetrate the market.
Risks Associated With Mobile Banking In Uganda
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Money laundering
Lack of clarity of responsibilities of regulators as
more than one regulators may be involved
(telephone or Banking regulators). This may lead to
failure to regulate the whole or part of the mbanking services.
Facilitate corruption
… Risks Associated With Mobile Banking In Tanzania
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Unavailable or unreliable mobile banking services
may cause severe impact to customers, providers or
country economy
Customer errors
Settling disputes
Privacy violation
Incomplete or Failure of transaction delivery
Frauds (agent defrauding the customer e.g. stealing
customer money, imposing excessive charges, fake
cash-in )
… Risks Associated With Mobile Banking In Tanzania
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Technology Specific risks
Malware attacks
Eavesdropping on telephone data
Fake authentication of users
Mobile devices may limit users to create PINs that can
easily be compromised
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Thank you for Listening
End