Mobile money transfer business has emerged as the biggest threat to Ugandan banks, executives said as more lenders sought partnerships with telecom firms to roll out mobile banking products.

Bankers said lenders have had to partner with the telcos instead of directly competing with them as Uganda joined the ranks of countries like Kenya, where mobile-money services has become big business over the past five years.

READ: Growth of mobile money transfer a threat to traditional banking

This will boost the ability of the banks to distribute products cheaply, run the back office and enhance capabilities for cross-selling products.

Ugandan banks are in talks with utility providers — electricity and water services — to allow customers pay their bills through the mobile banking platform.

“Mobile money transfer has brought a serious challenge to commercial banks because a person can decide to run a savings account in his or her mobile phone, hence affect the performance of the banking sector,” said Rodgers Kakeeto, the head marketing and business development at Opportunity Bank.

“Look at the banking sector in Uganda, the corporate market is getting exhausted. The only potential customers are now in the rural areas; they do not like filling so many forms like it is done in commercial banks; implying that  banks now have to make alliances with money operators to leverage business,” Mr Kakeeto said.

Big lenders like KCB, Equity, The Housing Finance Bank, DFCU bank are rolling out mobile banking services in Uganda as other local banks, which currently offer some form of Internet and mobile banking, seek to expand this platform.

Whereas Standard Chartered Bank launched its mobile banking known as M-banking in 2008, other commercial banks plan to follow suit in the near future.

MTN Uganda and Uganda Telecom launched their money transfer services, Mobile Money and M-Sente, in 2009 and 2010 respectively, giving opportunities for subscribers on the two networks to top up their phones with airtime, send and receive money, and pay utility bills using mobile phones.

Similarly, Warid Telecom launched Warid Pesa in December 2011 followed by Airtel Uganda early this year.

However, Airtel Uganda through their product, Airtel money, provides a platform that allows consumers access their bank accounts and withdraw money across all interswitch ATMs in the country.

Interswitch is an integrated system that provides online, real-time transaction switching that enable businesses and individuals access their funds across a number of partner banking institutions through various channels including ATMs.

The Nigerian subsidiary in Uganda currently partners with 10 commercial banks including United Bank of Africa, Global Trust Bank, FINA Bank, and Opportunity Bank.

Given the few requirements for the mobile money registration, easy access to services coupled with its flexibility, the uptake for the mobile money services has been high since it was launched three years ago.

For example, according to the  annual supervision report by Bank of Uganda 2011, the number of registered mobile money customers increased from 1,683,713 in 2010 to 2,879,968 in 2011, while the amount transferred by customers rose from Ush962.7 billion  ($358.2 million) to Ush3.7 trillion ($1.4 billion) over the same period.

In terms of volume, the service registered a 204 per cent increase in number of transactions from 28.8 million transactions in the year to December 2010 to 87.5 million transactions in December 2011.

For that, commercial banks in the east African nation are now looking at making alliances with telecom companies to retain customers and make the sector remain profitable.

“Originally, telecoms were supposed to deal with telecommunications. But with the need to increase subscriber base, they came up with the mobile money services. Now commercial banks are faced with a challenge of providing the same service in real time. And how do they cope up with that? Move with the trends, do the same thing they are doing,” said Michael Nksereko, head of e-business at Orient Bank said.