By Julius Businge
When The Independent recently spoke to William Sekabembe, the chief of business and executive director at dfcu about the bank’s strategy on digital banking, his comments reflected the popular view.
“We are investing heavily in technology so we can serve our customers without necessarily opening new branches in all parts of the country,” Sekabembe said.
His comments came at a time when sections of people argued that digital banking tools were silently killing jobs. Digital banking uses simple gadgets like phones and other internet enabled tools like tablets to make commercial transactions without necessarily visiting a service provider. Digital banking, therefore, sounds like a death knell on jobs since, according to informed sources, closing even the smallest bank branch in the smallest outpost kills at least about 15 jobs.
Media reports recently indicated that Equity Bank alone shed 660 jobs last year because of adoption of new digital technologies in Kenya. Up to 63% of the bank’s transactions are now conducted on the new technology platforms compared to just 7.4% of transactions conducted at its branches and 21% through agents as of September 2016.
The furor over job losses led the bank to issue a quick statement indicating that it would not be retrenching all workers but would instead reallocate them new roles within the bank. Bankers in Uganda share the share view. Instead of leading to net job losses, digital banking technologies, in fact, herald any rush of specialty jobs in the sector.
Bank executive have told The Independent that human contact remains critical in key areas that still require traditional way of banking. These include sales and marketing, product development, investment banking, loans, relationship management, and more.
Others say that once new banking segments like agency banking (where banks use agents to offer financial services in areas where they do not exist) come into play in Uganda, digital banking will open up a whole new array of jobs.
United Bank of Africa’s Head of Business Development, Don Atwine and Stanbic’s Head of Digital Banking, Veronica Sentongo said as banks become more efficient and improve performance, more jobs will exist in the area of financial literacy programs.
Banks will be working towards increasing the bankable population from the current about 30% of the bankable population of12 million. They added that there is still room for bankers to give advisory services to customers regarding retail and wholesale banking.
The question of unemployment is a major concern in Uganda because the country continues to grapple with about 500,000 people entering the labour market every year of which a small number of these get formal employment.
The services sector – where banks fall – contributes a substantial 50% to the national gross domestic product and that means a lot in terms of job creation and the multiplier effects.
The Uganda Bureau of Statistics (Ubos) data indicates that 64% of the unemployed Ugandans are aged 24 and under, which is on the backdrop of high population growth rate of over 3.3%. That is higher than neighboring Kenya’s 2.7% and Tanzania 3.0%.
Specific official employment figures for banking in Uganda are not available but the rate of job losses among tradition bank positions of tellers, office staff, guards, supplies vendors and more is not negligible given that the number of bank branches and Automated Teller Machine (ATMs) has been on the rise.
The last Bank of Uganda’s report on financial inclusion released three years ago put the total number of bank branches in the country at 658 up from 167 recorded in 2004 whereas ATMs jumped to 835 from 152 in the same period.
The onward trend curve for these numbers is likely to stagger somewhat as digital tools continues to excite bankers and their customers.
“I am able to buy airtime from my bank account by using mobile money on my phone,” said Josephine Alinaitwe a Stanbic bank customer, “It saves my time, energy and costs to move to a bank or ATM.”
Indeed Sentongo (the head of digital banking at Stanbic Uganda) said if Arinaitwe and others can transact using digital tools, there is no need of opening branches everywhere because they are expensive. She did not give specifics but a former employee of Crane Bank, now dfcu bank said it costs approx. US $2 million (Approx. Shs billion at current exchange rate) to put up a full-fledged commercial bank branch. Considering many factors, the official said, investing in centralised IT systems that would ably handle transactions without face-to-face meetings between customers and the bank, would make a good investment.
Sentongo said that digital tools have reduced the bank’s operational costs per customer by 80%.
“We spend Shs12, 500 to serve one customer at a branch compared to Shs2, 500 when we serve them using digital platforms,” she said. She added that 55% of the bank’s transactions have migrated to digital for the last two years and that new software is being sought to enhance the platform.
At Standard Group level, according to a notice quoting Peter Schlebusch, the group’s chief executive for personal and business banking, 95% of the group’s transactions are already electronic “making it a genuinely digital bank”.
In 2015, according to Schlebusch, 825 million financial transactions worth $29 billion were processed through the Stanbic banking app.
As a consequence of this, branch transactional volumes have declined and ATM and branch transactions now make up less than 5% of total banking transactions.
The group names Uganda amongst markets where it continues to enhance its integrated universal banking app, which allows personal, business and high net worth customers to view and transact with a single digital identity. The other markets the group mentions include South Africa, Ghana, Namibia and Botswana.
Other banks locally are telling similar good stories about the new tools.
Don Atwine (the head of business development at United Bank of Africa) said digital banking is becoming another competitive area of business which they cannot ignore.
“Digital banking is one of our strength as a bank… .our aim is to digitize almost everything in the bank as we grow this business,” he said, adding “About 30% of the bank’s transactions are digital. The target is to keep electronic transactions going up, Atwine said.
Opportunities for growth
Michael Niyitegeka, an ICT consultant in Kampala told The Independent in an interview that once well implemented – with concrete firewalls to prevent cyber crimes – digital banking will cut costs of doing business and result into improved efficiency in addition to increased profit margins.
“… and ideally that should result into reduced interest rates and other charges levied by banks on services offered to their customers,” he said.
Even Bank of Uganda Governor Emmanuel Tumusiime Mutebile reads the situation the same way. While addressing bankers in Kampala at a dinner on November 25 2016, he urged them to find ways of cutting operational costs so as to check the high cost of lending [hovering around 24% per annum] that was killing private sector growth.
Mutebile said annual operating costs as a percentage of average bank assets were as still as high at more than 7% than they were 10 years ago. As a percentage of their earning assets, he said, banks’ operating costs averaged nearly 11%.
The good thing, according to Niyitegeka is; access to mobile phones currently printed at slightly over 50% (where about 20 million people noted as telecom customers) will bolster the new system that widely uses digital banking.
Commenting on unemployment worries, Niyitegeka said: “… yes it can hurt employment but it can indirectly create more when banks become more efficient and engage in other forms of banking.”
The other forms he was referring to includes agency banking (where banks use agents to offer financial services) which many Kenyan banks are embracing in order to reach out to all the bankable population.
Kenya’s digital success story has seen banks swiftly respond by downsizing their branch networks.
Bank of Africa is shutting down 12 out of its 42 branches. Ecobank is closing nine out of its 30 branches. Diamond Trust Bank is doing the same.
All these banks have physical presence in Uganda. But top officials at these banks have not openly come out to announce their detailed strategy on the matter.
But Niyitegeka said that the decisions in Kenya are justified and Uganda would follow at the right time.
“When you have an agent to offer services on your behalf in places where you are nonexistent you do not need to be there physically,” he said, “I hope agency banking will make things happen when it comes to Uganda.”
Niyitegeka equated agency banking to telecommunication mobile money platforms that are creating thousands of jobs directly and indirectly in Uganda and other markets where the service is offered.