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Digitised Financial Industry Harder to Protect from Fraud- Banker

A payments switch is a tool that facilitates communication between different payment service providers. It typically provides authorizations of transactions and facilitates payment transactions between multiple operators and customers in real-time.

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Uganda is yet to have a national payments switch, two years since the idea was mooted by the financial industry and endorsed by the finance ministry.  This has continuously left loopholes that can be manipulated by fraudsters to steal funds in an electronic financial system, according to experts. 

A payments switch is a tool that facilitates communication between different payment service providers. It typically provides authorisations of transactions and facilitates payment transactions between multiple operators and customers in real-time. 

The payments switch minimizes losses arising from fraud and technical mistakes.

Ramathan Ggoobi, the Permanent Secretary at the Ministry of Finance, Planning and Economic Development, says the process is ongoing and the system will soon be launched after testing. 

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Ggoobi was speaking at a Financial Inclusion and Financial Literacy Forum involving the ministry, Bank of Uganda, and financial sector operators called to discuss the impact of the digital sector on financial inclusion. 

The idea behind the discussion is to find ways of ensuring minimal risks to funds as the Uganda and global economies get more digitalized. Ggoobi says a digital economy is one that can no longer be avoided because it is a global revolution, adding that it has already helped deepen financial inclusion in Uganda by increasing the number of people who access formal financial services. 

He, however, says that much is still needed for programs and products targeting women and youth in financial inclusion to prevent the widening of the prosperity gap between the and men. 

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The digital revolution has seen the financial industry as one of the main beneficiaries, with the introduction of mobile money transactions in the mid-2000s being one of the main landmarks. Since then, the platforms have been integrated in the operations of commercial banks and have also become major payment mediums. 

Today, there are a lot more Ugandans with mobile money accounts that bank accounts whose growth has remained very slow. However, banks have taken advantage of the innovation sector to integrate industry and telecommunication systems.

This, according to Emma Mugisha the Executive Director at Stanbic Bank, has not only helped in reducing cost of operations and extending reach of services, but has also increased the risk to funds. 

She says that apart from the many hands through which funds go electronically, as well as the 24-hour operation system create more chances for fraudsters.   

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Mugisha also says there is a socioeconomic risk where, apart from banks employing less people, traditional banking professionals are no long the main part of the staff of a bank but information technicians.    

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Deputy Governor at the Bank of Uganda, Michael Atingi-Ego says the main objective of regulation is to protect the customers’ funds, but also to ensure the strength of the financial institutions for the stability of the industry. 

“How can we leverage advancements in digitalization to kindle the demand for financial services by people at the bottom of the pyramid, and thus increase access to and usage of quality and affordable financial products?” 

Dr Atingi-Ego says the regulator in aware of all the risks that face the industry in relation to digital technology.  And the head of the National Payments System Andrew Kawere said the rate of legislation for the financial industry has been slower that the rate of digital financial growth, the reason there have been challenges like losses, which are now being addressed by new laws.    

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The Deputy Governor appealed to the players in the financial industry including innovators, to focus more on products that protect or conserve the environment.   

He said the role of the banker should not only be keeping people’s money safely and lending out, but also mind what the borrowers, for example are doing.   

This way, according to him, the financial inclusion drive will also help the communities, especially small and medium enterprises. 

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