Branch network is one of the metrics banks usually use to measure success. The more successful a bank, the more branches across the country. That, however, may be changing as digital banking and agency banking take root in Uganda’s banking sector.
Two weeks ago, Standard Chartered Bank, the country’s second largest by assets, announced that is closing two branches in Mbarara and Gulu. The bank said its Mbarara town branch on Plot 24 High Street and Gulu town branch located on Plot 3, Andrea Olal Road will cease operations on 29 November 2017.
In the notice announcing the closures, published in the New Vision newspaper, Standard Chartered hinted at why it was closing the branches. “We encourage our Mbarara and Gulu customers to continue accessing our services through our SC mobile app, online banking platform, ATMs, Straight2Bank platform, bulk mobile money payments and collections via Straight2Bank and any of our other branches.”
In short, the bank wants customers to utilise its online banking platforms and digital solutions like mobile money. Personal customers can use the mobile app or online banking platform, while business customers have Straight2Bank, “a fully-integrated internet banking platform that caters to your transacting and reporting needs across cash management, foreign exchange and trade finance.”
“The closure of the Gulu and Mbarara branches is in line with our refreshed strategy and digital by design agenda which is geared towards developing market-leading online and mobile channels that deliver easy, convenient banking to all our clients,” Cynthia Mpanga, the head of corporate affairs, brand and marketing at Standard Chartered Uganda said in emailed comments.
Ms Mpanga said the bank is realigning to “meet the changing needs of our clients”, most of whom have already migrated to its digital platforms and do not transact in the branches. This has led to a “reduction in the branch transaction traffic.”
The bank is not planning any more branch closures in the near future, she said. However, it will “continue to evaluate how we should reformat our current branches to deliver optimally to our aspiration.”
In what seems like a reference to agency banking, Ms Mpanga added that StanChart is “also forming strategic alliances with several distribution partners to increase market access.”
With agency banking, banks will contract people to provide their services, much like telecoms have mobile money agents. The model was approved by Parliament in January 2016. Its regulations have been gazetted, according to Christine Alupo, director of communications at Bank of Uganda, and will soon be published on the Bank’s website.
Uganda Banker’s Association, the industry lobby, told this website that agency banking “is officially supposed to start in the first week of October.” In March, the association said it is working together with a Kenyan ICT firm, Eclectics International Ltd, to “design, develop, deploy and operate the inter-operable shared platform that connects all member banks to the agent network spread across the Country”.
In a survey of eight banks by FSD Uganda, six said they are considering a hybrid agent network; their own agents, and those shared with other banks. One bank said it will use its own agents, while one each mentioned shared agents and outsourcing the service to another firm.
In any case, implementation of the model will involve a mixture of shared and own agents. What is not in doubt are the benefits to banks. In the FSD survey, they said they believed agency banking will lead to a growth in new clients and a reduction in dormant accounts. This is because it will make banking more accessible.
One other important factor is that it will reduce operating costs. “The benefits that accrue from collaboration include increased points of presence at a reduced cost of expansion with the opportunity to upgrade technology at minimal cost,” Wilbrod Owor, the executive director of the Uganda Bankers Association, said in March.
Banks might make a big deal of their branch network, displaying it prominently on websites and annual reports, but not all of them are profitable. And this is not just upcountry branches, but those in the Kampala metro area too.
Ecobank also recently announced that it is closing its Mukono town branch starting 1 October, although the ATM will remain in operation. An official with the bank, who asked not to be named because they are not authorised to speak publicly, said the branch was unprofitable. “We went to Mukono because everybody was going there without assessing very well,” the official said of the branch, which was opened in 2009.
Most of the business at the Mukono branch came from retail banking, yet Ecobank’s strategy is to leverage its regional and pan-African presence to facilitate trade. The bank was in a similar position with its Kyambogo branch and decided to close it and reassess its viability.
Ecobank moved the Kyambogo customers to its Kireka branch – which has a “very strong focus on transactional banking” – one of the options mentioned for those who have been transacting at the Mukono branch. Kireka, the official said, has several trading companies, particularly timber traders, and many people paying taxes.
Agency banking is a “good thing” for “a bank like ours that is not very interested in mortar and brick expansion,” the Ecobank official told Uganda Business News. Ecobank told customers affected by the closure of the Mukono branch that it is committed to serving them through other branches, “various ATM locations, points of sale, and our robust internet & mobile banking channels.” (The bank has pursued a similar strategy in Kenya.)
Few banks are as prepared for agency banking as Stanbic, Uganda’s largest commercial bank. Like the other banks, it has closed and merged some of its branches in anticipation of digital banking, and as it nudges customers to its digital platforms.
In May Stanbic announced that it is closing five branches in Pader, Pallisa, Koboko, Katakwi, and Industrial Area, Kampala, and merged them with branches in nearby towns and districts. “Customers can also use our digital platforms, mobile banking *290#, internet banking, or ATMs for day to day transactions,” the bank said in the announcement.
“Going forward, we shall be taking advantage of the opportunities presented to us by agency banking to extend our network and widen our product offering,” Cathy Adengo, Stanbic Uganda’s head of corporate communications said in emailed comments. “This will allow us to reach a much larger percentage of the population than ever before and increase financial inclusion significantly.”
The bank’s chief executive, Patrick Mweheire, has expressed great hope about agency banking. In a private discussion this website attended, Mr Mweheire said he was “really excited about” agency banking. The model allows the bank to reduce costs, he said, because it will take fewer people to do the work that more people are doing today.
Most people that go to banking halls do so to deposit or withdraw cash, what is termed cash in, cash out, according to the FSD Uganda survey. These transactions are followed by customers who want information about their accounts, opening an account for the first time, and receiving or making remittances.
Yet, these are services that can also be provided by an agent. Of course, this requires that they have the necessary security measures and always have sufficient liquidity, concerns the regulator has definitely addressed in the agency banking regulations.
These are also services that can be done on a phone using an app or a USSD code, or on bank’s websites. And it’s cheaper for banks when customers transact this way. It is seven times more expensive doing business at the branch versus digital platforms, Mr Mweheire said last November.
As of mid-August, Stanbic had spent about Shs400 million on digital marketing campaigns promoting the use of its cards, Flexipay platform, and digital banking platforms, the bank revealed at the release of its half year results. (The sum also covers brand and corporate social responsibility marketing.) For the second half of the year, digitisation was mentioned as one of the four pillars of its business transformation process.
Other banks have moved in a similar direction. Centenary Bank’s CenteMobile can be used for fund transfers, and utility bill and school fees payments. And, given the dearth of KCB branches and ATMs, some customers have told us they rely on its USSD code and mobile money for most of their transactions.
The bank branch of the future? It is digital.