Mobile money: So far so good, but…

Its fast growth raises concern that the absence of supervision is a risk neither the banking nor telecommunications industry can afford to ignore
Recently I went out to send Shs 840,000 to my village. Normally this is s pretty simple exercise, but my usual mobile money agent in Kamwokya said he had run out of money two hours earlier and couldn’t do it. I decided to board a taxi to Wandegeya, but the agent there wanted to charge me Shs 4,000, when I knew the official fee to send money was Shs 800. Shs 9,000 would be charged from the receiving end, bringing the total charge to Shs 9,800.When I asked why he would overcharge me when I knew he earns a commission from MTN, he muttered something I couldn’t hear and I walked away. By this time I was getting annoyed because Mobile Money is supposed to be easy and I shouldn’t be bargaining on charges. I ended up at Shoprite on Entebbe road where I finally was able to send the money at Shs 800 at 6.00 p.m. An hour later I learned that the money had been safely received.


This is still a world away from a few years ago when I had to make a tiresome, time-wasting two-day trip to the village to deliver such money or had to send it with a relative and worry for weeks until I got confirmation that they really did deliver it. But it bothered me that I had to try three different agents before I got the right one. Though a minor incident, it was a pointer to growing concern about the questionable security of mobile money.

A revolution
In just two years, mobile money has precipitated a revolution in the way people handle money by turning the simple mobile phone into a virtual bank. Now, one can save, send and receive money, pay for goods and services, including utilities, school fees, commercial merchandise - by simply pressing buttons on their phone, which has now works like a “virtual wallet” with the agent is now pretty much a virtual bank branch, able to do anything one would in an ordinary banking hall.

MTN pioneered the service in Uganda, launching Mobile Money in partnership with Stanbic Bank, and has grown a customer base of 1,600,000 accounts in two years. Uganda Telecom’s M-sente, in partnership with DFCU came a little later and has grown slower, with 400,000 customers reported. Airtel’s ZAP, done with Standard Chartered Bank, boasts about 134,000 accounts. Together the companies boast of a combined network of over 2,500 agents around the country which is phenomenonal compared to the 394 traditional bank branches.

In two years, the telecom companies have mobilized a pseudo-banking industry that rivals the traditional banking sector of over half a century, but which far surpasses its reach, especially to the 62% of Ugandans without bank accounts or located long distances from traditional banks. Moreover, mobile money agents can transact beyond normal commercial banking hours.
And more are jumping on this bandwagon. George Shine, head of Warid Telecom’s product and services department, says the company is negotiating with a yet-to-be-named bank to set up a mobile money service by July this year. Crane Bank’s Managing Director, A.R. Kalan, said they are also in talks with a telecom company to do the same.
“We are already in discussion with mobile service providers - negotiations are almost concluded,” Kalan said recently. “We don’t see mobile money as competition but as partners to provide a required service to clients. “
Lots of money
Part of what makes mobile money so revolutionary is that it forms a nexus between two of Uganda’s fastest growing and most competitive service sectors - financial services and telecommunications. Given its reach, low cost, speed and ease of use, mobile money is popular among consumers, policy makers and operators. With good reason: business is good.

Mobile money has shown spectacular returns. Paul Arinitwe, who operates a mobile money service in the Kampala suburb of Ntinda, has an office in a descent, well furnished building and employs four “tellers”, plus one other employee to register new customers. On a good day Arinitwe says he makes transactions worth Shs 2 million, Shs 500,000 on a slow day. He says most of his customers transact in small amounts between Shs 30,000 and 200,000, but they are many and at the end of the month, he and his team make a good income.

Figures for the companies are much more impressive. MTN alone recently put its monthly mobile money transactions at $90 million (about Shs 211 billion). This is excellent return as it rivals the income of a typical Ugandan bank and considering that the company invested US$ 10.9 million to set the service up. Airtel’s Public Relations Manager, Joseph Kanyamunyu, put the company’s monthly ZAP transactions at Shs 3.5 billion.

Bank of Uganda’s Communications Director, Elliot Mwebya, confirmed that the past year, mobile money transactions amounted to “hundreds of billions of shillings”, and that BoU is seeing this as an important platform of growth for commercial banks.

No rules?
Mobile money falls in the crack between banking and telecommunications. The fact that everything has gone smoothly and without complaint has created a sense of security among industry regulators that may be shattered by the next financial crisis. Neither the central bank nor the Uganda Communications Commission, which supervises telecom services, takes it as its responsibility. Partly this is because while all mobile money services are run as partnerships between telecoms and banks, their initial innovation and promotion was and remains as telecom products. Partly it may be because the system requires a level of technological creativity that banks are yet to master.

“Telecoms approached banks, we introduced them to BOU and agreed safeguards under which these products would operate,” Standard Chartered Bank’s Managing Director, Laming Manjang, told The Independent recently. Such safeguards included the telecom company opening a collection account in the partner bank through which all mobile money receipts and payments would be channeled, procedures for identification of customers and monitoring of thresholds for payments.

“So far it is working well. The central bank takes comfort in the collection accounts, but in future banks will take the lead,” Manjang said.

BOU’s Mwebya also said that while it is now a telecom product, with further innovation the central bank would be able to take on mobile money as a primarily banking service that it can supervise.
Airtel’s Kanyamunyu says their money transfer is safe and follows all the laws and regulations banks follow to curb money laundering and fraud.
“We have a tracking system and we are able to know where, when and who is undertaking a transaction,” he told The Independent. “Once someone is transferring a very large amount of money we are able to follow it up and ensure that no crime is being committed.”
For now however, it is not clear who is accountable in case something went wrong with mobile money services.
Consumer concerns
A key concern of consumers is overcharging. At an average 10% of each transaction, some industry players think the charges are too high and should be reduced to 2%, which is the average for traditional banks. The charges are as follows: For a Shs 5,000 – Shs 1 million transfer, MTN charges Shs 1,500 - Shs 10,000; Airtel charges Shs 500 and Shs 7,000 and UTL levies Shs 1,000 and Shs 18,000.

But Anthony Katamba, MTN Uganda’s company secretary, said 2% is not viable  until business grows bigger. “As volumes grow then yes, it would increase our profitability,” he said.

Apart from high official charges, some agents overcharge, especially when consumers don’t complain because they have not checked or are desperate, for example in rural areas where another agent may not be close by.

Monitoring agents
The term “mobile money agent” currently encompasses a wide range of people that offer this service on behalf of the telecoms, including banks, micro credit institutions, telecom service centres, specialized agents, individuals, etc. Telecom companies have tried to impose rules on how they operate to maintain services and security of transactions. MTN requires its agents to be registered companies with minimum operating capital of Shs 1 million held in an account with Stanbic Bank, as well as decent premises. This rule is obviously not foolproof as some agents operate in shacks, some have no premises at all, and yet others – like the one in Kamwokya -  are often caught without cash.

The company has deployed regional mobile money account managers that monitor, evaluate and report on agents’ customer service, liquidity and standing in the community.

The central bank has further directed telecoms to license their agents who are not bank branches to maintain an escrow account at a formal banking institution.

So far there seems to be no safeguard against overcharging, except the customers alertness, but hopefully the industry continues to develop measures to secure these growing fortunes.