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SIMPAY online platform could lower interest rates

Andrew Otiko

Mobinet Group, an international company with branches in Asia, Europe and Africa, is preparing to roll out their financial payment platform, SIMPAY, in Uganda.

ANDREW OTIKO, CEO of Mobinet Group, spoke to Jeff Mbanga about the kind of impact it could have on the economy.


Briefly, what is Mobinet and why does it have an interest in Uganda? What opportunities do you see here?

We are a technology company providing reliable and secure technical solutions to financial institutions, public organisations, private companies and non-IT dependent businesses.

Our goal at Mobinet is to enable individuals across Africa to benefit financially and socially from the advancement of technology. With Uganda, financial inclusion is key as it directly impacts the growth of the economy, benefitting farmers, market traders, teachers and so on.

The agricultural sector accounts for about 70% of the total employment according to the National Population and Housing Census, which makes this sector alone a wonderful opportunity for Mobinet in Uganda. Mobinet is trying to launch SIMPAY in Uganda.

How will this product change the face of banking in the country?

Imagine simple banking on your phone (basic feature or smartphone), which is secure, menu driven, not reliant on the Internet and remembering codes.

SIMPAY uses Subscriber Identity Module (Sim) overlay technology, which has already been in use for decades in China and closer to home by Equity Bank in Kenya.

The main change will be an increase in financial inclusion for the bottom of the pyramid users who are currently excluded from the typical banking services, most importantly loans.

SIMPAY will promote secure branchless banking with less reliance on partnering with mobile network operators so banks are in full control of customer confidential data and transactional information.

Banks will be more visible in rural areas without the need to focus on building traditional bricks and mortar branches by growing an agency network integrated to SIMPAY.

The main worry over such platforms is the risk of technical glitches and security breaches. Can you give us any assurances that this product is fairly secure?

SIMPAY is not reliant on Signaling System 7 (SS7), which has inherent vulnerabilities. This is a general problem for all USSD-based [text communication] mobile banking systems where intrusive attacks can lead to customer financial loss, data leakage or disruption of communication services.

SIMPAY is based on end-to-end encryption, which protects customer confidential data. PIN authentication is required for all transactions from checking one’s own balance, transfers, paying bills and even airtime top-up which is not the case for some mobile money transactions.

There are transactions that also require a one-time password for further security. Where technical glitches are concerned, as long as the banks systems are online and the user can send a text message, then the platform is fully operational.

SIMPAY, if I got it right, could deepen access to credit. Should we expect that this product has the ability in contributing to a drop in interest rates on credit? If so, how?

SIMPAY provides a wealth of data to banks as consumer behavior can be collated, monitored and analysed. With the various reporting tools embedded in SIMPAY, banks can assess the risk of lending to customers as spending habits can be reviewed and risk of defaults ascertained.

Interest rates are dependent on a multitude of factors including cost of funds to the banks, costs of administering the loans, risk of default, liquidity through deposits, inflation and so on.

SIMPAY directly influences some of the factors affecting interest rates on credit, which might help in lowering interest rates.

First, it enables the unbanked population to increase bank liquidity by depositing money with banks which can in turn be loaned out to other customers; so, cost of funds to bank are reduced.

A culture of saving is encouraged with financial education with the deployment of SIMPAY which further aids the amount of accessible cash in the banking industry.

Secondly, administration of the loans is carried out via the SIMPAY platform, hence reducing the labor-intensive cost of assessing each applicant. Finally, various metrics can be automatically assessed which reduces the risk of default as access to customer spending habits exists on the platform which is critical for banks in making an informed decision.

SIMPAY has the ability of bringing more money from the informal channels to the formal setting. This, in many ways, increases the money in circulation, which can be an issue for the central bank in managing inflation.

What benefits should the central bank see in such products like SIMPAY other than tools that increase the money in circulation?

One of the main benefits is that of financial literacy which aids users in making better informed decisions. For the central bank, having too much money in circulation should not really be an issue with adequate planning and budgeting in place.

Products like SIMPAY will encourage further investment into Uganda as it will be seen as a country that uses innovative technological solutions in improving the economy.

It will consolidate the country’s position as a major player in terms of its recognition and willingness to embrace the right technology for its environment to drive economic improvements and keep pace with global competition.

Speaking of regulation, who should regulate such platforms like SIMPAY seeing they are part of an interface between banks and telecoms? Do they need to be regulated in the first place?

In my opinion, regulation is essential for everything related to banking; however, this is akin to issuing a new card to a bank customer for them to make transactions at an ATM.

In its simplest form, SIMPAY is a microprocessor tailored for banking operations, which sits on a GSM card for encrypted text messaging. As long as regulation is not required for sending text messages and none is required for creating an interface, then I believe no regulation is required for SIMPAY.

However, it is essential for the Bank of Uganda to understand new technologies being used in the banking industry by their banks. SIMPAY is meant to reduce the banks’ reliance on telecom companies when it comes to financial transactions.

But at the end of the day, banks need to consider two issues: price and the range of network.

How does Mobinet’s product compare in terms of price and outreach against what the telecoms offer?

SIMPAY is an alternative delivery channel for banks to acquire and retain customers without reliance on telecom companies.

From a pricing point of view, starting with the customers, we ensure they do not have to pay for the encrypted text messages; so, they can perform a transaction without having phone credit as Mobinet absorbs this cost.

The bank will charge as per their price plan depending on the transactions being done; however, the setup cost of each bank is different depending on the size of the banks customer base and volume of transactions.

There are no annual license fees, no customization charges, no integration cost, no software cost, no support fees, no testing charges and SIMPAY works with the banks’ existing infrastructure.

Most importantly, the bank saves on the cost of USSD fees paid to the telecom companies [which] are now in complete control of customer information.

Mobinet also absorbs the cost of the physical overlays supplied to the bank for its customers, making the solution relatively cheap for the banks. With regards to the range of network, it will be exactly as the telecom companies in so far as a text message can be sent.

This is, however, superior to the normal banking apps designed purely for smartphones where there is a huge reliance on the Internet.

The infrastructure generally is based on 2G and 3G network coverage, making SIMPAY a superior product as it works on basic phones, feature phones and smartphones. It is telecom-agnostic; so, it can work with any telecom operator independent of the underlying SIM card.

jeff@observer.ug

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