still another keen interest by nigerian investors in uganda here.


Bankom Uganda, the country’s only licensed interbank switch operator, has acquired a new strategic investor two years to the expiry of its exclusivity period.

As a result of the partnership, InterSwitch Ltd of Nigeria will own a 60 per cent stake of the frim. InterSwitch’s entry has consequently diminished existing shareholders’ stakes with Cashnet holding 32 per cent compared with its previous 80 per cent while Pesacom’s stake has been slashed to 8 per cent.

The new shareholding arrangement is expected to boost Bankom’s capital base and create access to superior technical resources from InterSwitch’s operations in Nigeria.

InterSwitch is Nigeria’s market leader in the electronic transaction switching and payment processing solutions industry.

Though Bankom is Uganda’s pioneer interbank switch operator, it has struggled to attain significant penetration in the banking sector because of capital constraints and lack of a proven strategic investor on its books, according to industry sources.

Out of 22 registered banks, Bankom serves five banks with relatively small branch networks and modest client numbers. This has severely weakened Bankom’s market position in spite of its exclusive status.

The company commenced operations in 2005 and initially enjoyed a four-year monopoly period which was subsequently extended by three years.

With only two years left to the expiry of the monopoly period and growing penetration by the rival Visa card service, market analysts believe Bankom has found itself under pressure to recapitalise and invest further in vital infrastructure ahead of a possible onslaught by new firms.

Interswitch’s acquisition of Bankom has stirred appetite among small banks keen to join its switch in anticipation of lower expansion costs and valuable synergies that usually accrue from a prestigious strategic investor.

“InterSwitch is a very experienced player in payment processing solutions and boasts valuable technical and financial resources that are necessary for Bankom’s growth. Bankom lacked sufficient capital at the start whereas transaction processing systems are very costly.

"In the meantime, they need to roll out a larger automated teller machine (ATM) network and also sign up one big bank in order to attract many more players. As a small bank, we opted to rejoin the Bankom switch because of anticipated growth in its network and transaction volumes with the entry of InterSwitch while benefiting from lower expansion costs,” said a senior executive at Orient Bank Ltd, one of the banks on the Bankom switch.

He added that early entry onto the switch would attract lower premium costs than later on due to a projected surge in market appetite.

Infrastructure

Lack of sufficient infrastructure on Bankom’s network is seen as its biggest undoing in the banking sector. While leading players like Stanbic and Centenary Bank currently account for more than half of total ATMs in the country estimated at 400, Bankom possesses fewer than 50 ATMs, rendering it economically unattractive to the former.

This has confined it to smaller players with small branch networks that are unable to fill its infrastructure gaps. Current members on the Bankom switch include DFCU Bank, Cairo International Bank, Global Trust Bank, Orient Bank and United Bank of Africa.


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