Uganda Takes Another Step On E-Payments Path - Five Things You Should Know

Long periods of limited physical contact under COVID-19 lockdowns triggered new interest in alternative payment methods beyond existing options. The Bank of Uganda is among institutions that have taken steps to promote a shift towards a cashless economy. It recently ordered commercial banks to reduce by 50% the maximum amount customers can transact by cheque - from an upper limit of US$5,500 to US$2,750 - starting January 15. This move reflects a slow-rolling process across East Africa towards electronic payments. Mercy Muendo has studied information technology and law. We asked her to unpack five key points in the Bank of Uganda's move._

1. What is e-payment?

These are electronic payments for transactions made on the Internet. From a legal standpoint, it's any form of payment made on the internet and conveyed via the internet.

With the advent of COVID-19 and ensuing restrictions on physical contacts, e-payments have been widely embraced. This has become a key catalyst in the ongoing shift towards a 'cashless society', a state when the economy no longer relies on notes and coins.

Traditional electronic payments entail the use of cards, real-time gross settlement system and electronic funds transfer (EFT). These require linking of transactions to physical bank accounts. Modern forms of e-payments include mobile money, and use of third party platforms.

Thanks to the invention of mobile money, many people have embraced e-payments. Third party platforms such as Pesapal, PayPal and Stripe, have also offered people alternative to the use of debit or credit cards.

2. Is Uganda still very cash-dependent?

A study revealed that, by 2018, only 28% of Ugandans had bank accounts. The rest were literally unbanked and dependent on cash and barter. This had made transition away from cash much harder.

In 2020, Uganda passed the National Payments Systems Act that governs electronic payment services. The Act seeks to safeguard consumers from harm that may arise from use of e-payment platforms.

It requires all electronic service providers to apply for licences, and have a physical trust account or minimum account balance. It also provides for regulatory sandbox framework for new entrants into the industry.

A sandbox is a temporary licence that allows a new entrant to test innovative payment before meeting all the market operation requirements. If the central bank feels that the product is harmful to the public, it can revoke such a licence... Read more on All Africa

Source: All Africa