Cashless transactions rise with Covid-19, says BoU

A customer uses a contactless card to complete a transaction in a supermarket. Covid-19, accelerated the adoption and use of financial technologies such as contactless payments. PHOTO | EDGAR R. BATTE

By Dorothy Nakaweesi

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Internet and mobile banking grew with disruptions occasioned by the Covid-19 pandemic, a Bank of

Uganda review has shown.
The two platforms were some of the digital channels that registered strong performance in the financial services sector.

The quarterly financial stability review for the year ended December 2020 indicates that the value of Internet and mobile banking transactions rose by 30.2 per cent and 135.2 per cent, respectively while mobile money grew by 28.2 per cent compared to a 2.9 per cent growth in 2019, which represented an equivalent of Shs93.7 trillion.

However, the Bank of Uganda report noted that whereas the Central Bank supports growth of digital financial service delivery, Supervised Financial Institutions (SFIs) must address the associated cyber risks, which increase the risk of fraud. 

In October last year, the mobile money and banking sectors experienced a massive attack in which close to Shs4.4b was siphoned through simcards that had been earlier created with the assistance of people working for telecoms. 

However, while a report about the matter has not been released, banks have initiated enhancements to protect their systems from further attacks.

Fintechs react
Mr Peter Charles Kawumi, the chairman of Financial Technology Service Providers’ Association of Uganda, a non-profit, membership-based association representing Uganda’s local and global fintech community, said the growth could have been supported by Covid-19, which accelerated adoption and use of financial technologies.

“Many people now who use mobile banking, mobile money and other digital financial services,” he said, noting that whereas Covid-19 had ravaged the larger economy it had created opportunities in other sectors such as fintechs.

The March-June lockdown, he said, forced a number of people to use digital transactions, which is why, according to Mr Kawumi: “we see an increase in the use of digital financial services driven by Fintechs”, which has also pushed small businesses into realising their potential.

“The future is digital and we believe that this growth is going to continue,” he said. 

Internet shutdown
However, the Central Bank warned the performance was interrupted by the January 13-18 Internet shutdown in which a number of digital payment platforms were rendered useless for close to five days. 

“Majority of banks were not able to process outward transfers, clear cheques, perform reconciliation of transactions and make transactions via digital platforms which rely on the Internet or online trading platforms,” the report noted. 

Therefore, the Central Bank said all SFIs must establish dedicated leased lines and or satellite Internet systems as a backup solution to mitigate unforeseen disruptions.

This, the Central Bank said, would provide connectivity for core banking systems and other critical systems needed for bank operations.

BoU measures
The Central Bank noted it had undertaken several measures, among which which include fast-tracking of the gazzetting of regulations for the National Payment Systems (NPS) Act 2020 to address emerging operational and cyber risks related to payment systems.

This, according to the Central Bank, going forward will enhance regulation of emerging risks from payment channels.
Furthermore, the Central Bank said it had embarked on stress tests and network analysis for payment systems, to identify and address vulnerabilities arising from the interconnectedness as well as enhancing capacity building for staff on the evaluation of information and communication technology (ICT) risks and conduct of ICT audits.

The Central Bank also directed SFIs to enhance risk management, business continuity, internal controls, ICT infrastructure and surveillance.

How Internet shutdown affected banking                            
However, the Central Bank warned the performance was interrupted by the January 13-18 Internet shutdown in which a number of digital payment platforms were rendered useless for close to five days. 

Majority of banks were not able to process outward transfers, clear cheques, perform reconciliation of transactions and make transactions via digital platforms which rely on the Internet or online trading platforms,” the report noted. 

Therefore, the Central Bank said all SFIs must establish dedicated leased lines and or satellite Internet systems as a backup solution to mitigate unforeseen disruptions.

This, the Central Bank said, would provide connectivity for core banking systems and other critical systems needed for bank operations.