Telecommunication companies were initially for communication but currently, they’re also the leading financial institutions in Uganda’s economy.
Business analysts contend that telecoms are fast transforming Uganda’s economy from being cash-based to becoming electronic money based or cashless.
The issue of digital payments is strongly debated among governments, central banks and financial experts. Indeed, the proliferation of new electronic and mobile instruments has opened the door to a possible revolution of the payments landscape. Yet, various factors must be taken into account as a worldwide shift to a cashless economy could prove more complex than believed.
Today, mobile money, MoMo Pay, Airtel Money Pay, M-Pesa, Facebook Money, and other forms of online transactions have overtaken the traditional methods of consumption by paying cash.
As a result of the convenience brought about by electronic money transfers through MoMo Pay, Airtel Money Pay and others, telecoms have made life easier for Ugandans by giving them an opportunity to transact with ease.
Because of the convenience brought about by the telecoms’ mobile money service, these days it is very easy to walk into a supermarket without any cash and purchase all the products you want by using MoMo Pay or Airtel Money Pay.
It should be noted that unlike the normal mobile money transaction, users of MoMo Pay and Airtel Money Pay don’t incur charges. This means that the telecoms are helping consumers move with their money and have the power to consume any product at any time, without necessarily having to rush to the bank for withdrawals.
Besides that, unlike Automatic Teller Machines (ATM) which have withdrawal limits, digital money transfers do not limit a consumer from withdrawing any amount at any time, which is another feature that is making Ugandans embrace MoMo Pay and Airtel Money Pay.
When our reporter asked Airtel Monye’s Head Merchant Portfolio Godfrey Muhindo about the service, here is what he said;
“This is a new service that enables Airtel Money subscribers to pay for goods and service using Airtel Money instead of exchanging cash for such purchases.
The service enables both parties (Merchant and Consumer) to immediately confirm these proximity payments via text message (e-receipt) that is sent to both subscriber and seller of the goods/service. No relationship between the buyer and the organization or account number is required.”
While explaining who is a Merchant and how one becomes a Merchant, Muhindo revealed that; “A merchant in our case is any business out there that accepts Airtel Money as a means of payment for their goods and services.
Merchant business is a new phenomenon in telecom Mobile Financial services but has existed before in other sectors like banking with their merchant business involved in the acceptance of cards like Visa and MasterCard. Our local duukas, pharmacies, supermarkets, bars and restaurants among others are potential merchants.”
He added that “Telecoms in other countries like Kenya (Safaricom Lipa Na M-Pesa, Zimbabwe (Econet Wireless’ Ecocash) have also started merchant payments as a way to promote customer convenience via digital mobile financial services.
Explaining how Airtel Money Pay Works, Muhindo said that; “Once a merchant has been assigned a merchant number/ ID or QR code, Airtel Money customers can pay from their phones to the merchant using the following way;
The merchants can also initiate a transaction on their SIM menu and the subscriber will only input their PIN to complete the payment process.”
Striking A Balance Between The Two
However, as Telecoms transform Uganda’s economy from being Cash-based to being Cashless, here below are the benefits of a Cashless economy;
Ease Of Access
It should be noted that the most profound way of increasing consumer power is by making it easy for the consumer to have easy access to their money. Cash does not require a technology infrastructure, cash should be available to all users, cash is universal and shouldn’t be hidden in a bank vault.
Reduced Money Laundering
To justify a withdrawal of paper money, governments argue that a fully digitalised system would eradicate tax evasion and money laundering, reduce transaction costs and enable financial authorities to stimulate economic growth. A cashless system would enable governments to track and record every transaction, leaving no loopholes for fraudsters to exploit. Moreover, the Bank of Uganda would be able to impose any desired monetary policy – including negative rates – as consumers would have no way to retrieve their cash from the banking system.
Increased Financial Control
Experts contend that a demise of paper money would enable governments to exercise a full control over the banking system, including tracking and recording all transactions. If this might be useful in the fight against criminality, it will also impinge on consumer rights to privacy. According to specialists, a shift to cashless might even create a second-class citizenry and thus deepen the gap between rich and poor.
Fewer Currency Notes in Circulation
Simply put, a cashless economy is where fewer notes exist in circulation as compared to the money supply. For instance, in a country like India, about 14% of the total money in existence is present in the form of cash, the rest is digital money. In economically advanced countries this percentage is close to 5%. The goal of a cashless economy is to move towards 0% cash. A perfect 0% will never be achieved. However, the closer the number is to 0%, the better it is. In cashless economies, only smaller bills will exist for small menial transactions. Any transactions above a certain amount will have to be done digitally.
One of the immediate benefits to the government would be a higher Seigniorage. Seigniorage is the profit from the printing of currency. For instance, it costs $2 to print a $10 bill, and then the Seigniorage is $8. Cashless money exists in the form of digits on a computer. Hence it does not have to be printed. As a result, the Seigniorage is high. The government saves a lot of money. This excess saving can be used to provide tax waivers to the people. Digital money is simply a more efficient way to operate an economy.
Reduced Tax Avoidance
In many developing countries, tax avoidance is a major problem that impedes development. This is because mafia and other large organizations gain hold of businesses. The money generated is laundered easily due to lower rates of law enforcement. Countries like India have borne the brunt of this problem. Only 10 million people lay taxes out of 120 billion! This is the case even though the country is developing. A culture of tax evasion is prevalent and cheating the government is considered to be a smart move. For the nation to truly benefit, more people must pay taxes. A cashless economy helps track economic transactions and hence increases the rate of tax compliance.
However, a cashless PR digital economy also has its shortcomings, which we shall unveil in our next briefing about how Telcoms are shaping the future of Uganda’s economy. In our next article we shall also bring you Airtel Money’s Head Merchant Portfolio, Godfrey Muhindo, explaining how this service works.