The Effect of Automated Teller Machines (ATMs) on Uganda's Banking System

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Submitted by Ruhangayebare D... on Mon, 16/05/2011 - 10:56am

In Uganda, the use of ATM cards has taken off more slowly than expected. An explanation could be that consumers and merchants change their payment habits more slowly. Nevertheless the change towards this payment system is taking place.

Payment patterns are changing worldwide as card-based payments are becoming a popular alternative to using cash; although cash payments still remain the preferred option for low-value expenses.

Analyzing the use of alternative payment media in Uganda and the effect of such changes on money supply and transaction levels, one finds out that cash is still employed in over 65% of purchases in Uganda and as a result, the amount of outstanding currency continues to decrease.

One of the main problems that prevent the growth of ATM use in Uganda, is the lack of literacy on how to use the machines.

According to a bank product development manager, banks constantly encounter problems with customers who have no clue on how to use the machines.

As a result they spend too long fidgeting with the machines and end up causing long delays and longer queues.

Contribution of ATMs to Economic Development

In spite of the above problems, bank officials say ATMs have greatly improved banking services in Uganda.

ATM card technology is enabling the development of services in previously un-banked areas, helping to stimulate local economies and encouraging investment and tourists' spending.

"Uganda has a great potential for growth; utilizing new electronic banking system without having to significantly upgrade the existing infrastructure", says an ATM user.

ATM cards are an important channel for banking in environments where the communication infrastructure is deficient.

Now that international standards have been agreed for many ATM cards transactions, we can look forward to extensive growth in future.

Once an infrastructure for ATM cards exists, both traditional and non-traditional players will be able to contribute to developing the products to suite previously un-banked clients.

The non traditional players include cellular operators and retailers.

ATM cards are allowing these operators to offer banking facilities in areas where this may not have been previously possible, bringing them directly into the space traditionally owned by the banks.

Cellular operators especially stand to benefit as competition heats up.

The study also established that ATMs will provide Africa's best chance of catching up to the rest of the financial world.

The banks consider ATM banking as a core element of their service delivery strategy.

ATMs represent an answer to clients as banks rationalise branches and for previously un-banked areas.