Mobile money services in Uganda have progressed steadily in recent years enabling online transactions on both cash and cashless basis depending on users’ preferences independently under telecommunication service providers but the narrative is yet to change following the decision by the central bank to have mobile money services regulated under the Bank of Uganda as a financial service.
This means that mobile money which has been under telecommunication service operators, regulated by Uganda Communications Commission will now be regulated by the central bank with the issuance of financial services operator licenses to Airtel Money, which will trade as Airtel Mobile Commerce Uganda and MTN respectively.
The licenses, which were issued at the weekend by the National Payment System department at Bank of Uganda, will seek to ensure the overall effectiveness and integrity of payment systems in the country, including mobile money.
The Bank of Uganda Governor Emmanuel Tumusiime Mutebile said the Central Bank had commenced licensing of payment system operators, payment service providers and issuer of payment instruments, which is provided for under the National Payment System Act 2020 and guided by the National Payment System Implementing Regulations that were gazetted on March 5, 202.
Mutebile further noted that the Central Bank had licensed Wave Transfer Limited to operate under the regulatory Sandbox, which will provide a layer between banks and their innovations to facilitate collaboration between Fintechs and the banking sector.
According to the Central Bank, this is meant to ensure a streamlined regulatory regime of all financial-related operations and also seek to support the deepening of the cashless economy, which the Central Bank had about four years ago said would be achieved by 2022.
However, even with the rapid growth in digital transactions, supported by mobile money and online banking, it will be difficult for the Central Bank to achieve a cashless economy next year given the high affinity to cash payments by a number of Ugandans.
According to the Bank of Uganda annual report for the year ended June 2019, Uganda is still a largely cash economy with cash payments representing at least 96 percent of completed transactions.
The National Payment Systems Act, among others, seeks to separate telecom services from financial operations that are largely regulated by Bank of Uganda. The Act also requires telecom to register new subsidiaries under which mobile money services will be operated.
For instance, Airtel Money will operate under Airtel Mobile Commerce Uganda while MTN will operate its e-commerce platform under MTN Mobile Money Uganda.
Mr Peter Kawumi, the Financial Technology Service Providers Association of Uganda chairman, said mobile money operations are now properly regulated by a competent function under the Central Bank.
The licensing of payment systems, he said, will now open up investment opportunities and partnerships within and beyond Uganda and a clear growth trajectory. Previously, it has been difficult to regulate mobile money due to the absence of an enabling law.
While no particular details are mentioned, the 2019/20 Deposit Protection Fund report noted that there were plans to protect money belonging to mobile money subscribers, which means that just like banks, mobile money companies will be required to deposit a certain amount of money with the Deposit Protection Fund to protect subscriber deposits.
“With regards to developments in the regulatory space, the National Payments Systems Act was passed by and assented to. Under this legal regime, protection will be accorded to mobile money subscribers should there be the failure of a financial institution holding mobile money balances,” the report indicated.