Two african dressmaker woman designed new red dress on mannequin at tailor office. Black seamstress girls.

The Role of Digital Payments Fintech in Accelerating the Development of MSMEs in Uganda

The Role The world, including Uganda, is entering the Industry 4.0 era in which optimization has been utilizing the technology of artificial intelligence, big data, and the Internet of Things. In such an era, innovation is key, innovation has a key role in creating products and services. A product/service is evaluated not only by its function or utility but also by its convenience of use, delivery time, and efficiency. Therefore, it has positive values that differ from products/services from previous eras.

Massive innovation also happens in the finance sector, including payment systems whose recent innovation is in the form of digital payments. With such a platform, people no longer need to pay using cash or a card. Payments can be made by only using a cellular/internet connection and a smartphone, known as a cloud- or server-based payment system. This system has several advantages over electronic money–based cards; it can store data and transaction records over the internet (cloud-based). If the sim card or hand phone used as an e-wallet is lost, the electronic money stored in it is not necessarily lost as long as access to the sim card is regained. If the money-based electronic card is lost, then the electronic money stored cannot be obtained again.

Digital payments have immense potential to be widely used in Uganda as over 40 million people in the country, 49% of whom have smartphone or tablet devices that use the internet. Furthermore, the majority (12.169%) of internet users in Uganda are between 19 and 34 years, generally technology literate, and highly mobile (Data Reportal)). Such a high potential market has encouraged the perpetrators of the financial industry to innovate to meet the needs of consumers who require payment systems to be more efficient, practical, instant (one-touch payment), and secure. Digital payments also have a wide room to be used in Uganda as the majority of its society still relies on cash in making payments.

In Uganda, the majority of retail transactions are still paid in cash, leaving the country behind its neighbors in Kenya and Tanzania.

Furthermore, digital payments do not only benefit individuals but also positively affect the development of micro-, small, and medium-sized enterprises (MSMEs). Below, we have pointed out some benefits to MSMEs of digital payments systems:

(i) Safer and faster payment. Digital payments can reduce transaction costs as paper-based payment involves manual processes and takes many steps to complete.

(ii) Better customer experience. Unlike paper-based payment that requires customers to bring cash everywhere, with an e-wallet, they only need to bring their mobile phone. It is more convenient for customers as making payment takes only one click. Customers also do not have to provide several denominations to pay an exact amount; sometimes getting small denominations of money is quite cumbersome.

(iii) Increased transparency and well-managed bookkeeping. Every payment transaction using digital payments is automatically recorded on the server. Therefore, without manual recording, MSMEs can access their transaction record and have neat and accurate bookkeeping.

(iv) Deliver competitive advantage. As payment becomes borderless, MSMEs can access overseas markets through the digital payments platform used globally. MSMEs can also create value-added services, such as customer loyalty programs/rewards since they can analyze their customers’ profiles and behavior like their spending profile and behavior.

However, although digital payments benefit MSMEs, still, in the case of Uganda, there is still limited research in investigating the impact of digital payments on MSMEs’ businesses

Leave a Comment

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>