Kenyan mobile money grows amid decline in traditional card payments

The popularity of mobile money in Kenya has continued to expand against traditional payment methods. However, the fragmentation of the digital transaction market could see cash remain the preferred option for many people.

Growth in mobile payments reached 8% last year, and totalled KSh3.6trn ($36bn) in value, according to newly released Central Bank of Kenya (CBK) data.

While steady, the pace of expansion was slower than in 2016 and 2015, when growth rates of 19% and 17% were recorded, respectively. Muted consumer spending as a result of a combination of factors, including lower-than-expected economic growth, contributed to the slower pace of growth, according to industry stakeholders cited in local press reports.

Despite the more subdued performance last year, the overall trend for the segment over the past decade has been robust; the value of mobile money transactions has jumped more than 20-fold, from just KSh166.6bn ($1.7bn) in 2008, the first full year the CBK recorded statistics for the segment.

A key driver of growth has been the M-Pesa mobile money system, which was launched by local telecoms operator Safaricom in 2007 and allows users to send money, pay bills and apply for loans through their mobile phones.

M-Pesa controls 81% of the mobile money market and had 22.6m subscribers as of June 2017. It has also been cited as the key factor behind the rapid increase in Kenya’s financial inclusion, which has risen from 26.7% in 2006 to 75.3% in 2016.

Kenya also has the highest rate of mobile money penetration in East Africa – at 59% – and the 10th highest in sub-Saharan Africa, according to GSMA Intelligence.

Banks target upper end of the market as card transactions fall

Despite the slower pace of growth in 2017, the segment still performed better than traditional card platforms, which continued to decline.

The value of card-based transactions dipped by 0.5% to KSh1.39trn ($13.9bn) last year, CBK data showed, with the figure falling by 9.1% from the high of KSh1.53trn ($15.3bn) recorded in 2013.

The number of card transactions also fell to 215.6m last year, down from the 216.2m in 2016 and well off the record of 338.1m seen in 2013, with the increased uptake of mobile money seen as a major factor behind falling card usage.

In particular, limited access to compatible card processing technology has been highlighted as a factor inhibiting card transactions among businesses. Despite having 16.6m cardholders, there are only 35,000 point-of-sale machines in Kenya, according to the CBK, with the cost of such services highlighted as factor preventing broader penetration.

Further highlighting accessibility issues, the Financial Inclusion Insights 2016 Kenya Annual Report and Survey Data, released in November last year, found that while 62% of people surveyed said they lived within one kilometre of a mobile money agent, the figure was much lower for banking agents (31%) or bank branches (14%).

To encourage more activity, banks have sought to attract business from the middle- and upper-sections of the market through higher transfer limits, highlighting the regulatory ceiling of KSh140,000 ($1400) per day placed on mobile money transactions.

In February last year a partnership of local banks unveiled PesaLink, another mobile and electronic money service. With a daily limit of KSh999,999 ($10,000), the platform is likely to attract a greater proportion of higher-value transactions, with users provided the opportunity to initiate payments from mobile phones, bank branches, ATMs or via the internet.

Cash remains main transaction method

Despite the growth in mobile money payments and the increasing number of banking options, the use of cash remains key for many Kenyans.

According to the 2016 FinAccess survey, released by the CBK, 94.6% of business owners still used cash as their main mode of payment, with similarly high levels among casual (94.7%) and agricultural workers (92.8%). Conversely, only 43.3% of regular employees were paid in cash, with 47.2% receiving their wages electronically.

Furthermore, highlighting the important role that cash plays in the economy, Willie Kimani, CEO of supermarket chain Naivas, told a digital payments industry event in March this year that cash still accounted for more than 60% of the company’s transactions, followed by card (17%) and M-Pesa (16%).

Some industry figures have cited the complexity and fragmentation of Kenya’s digital payments system as a factor facilitating the dominance of cash.

Francis Mugane, general manager of integrated digital payments and commerce firm Interswitch, told a forum hosted by entrepreneurial club Mettā Nairobi in March that the large number of payment options available may deter many local vendors from making the necessary technological investments to facilitate such payments.

“In terms of backend and reconciliation, the investment the merchant has to make is very high for [it] to be sustained,” he said.

“Because they are working with several different partners they don't even benefit from the economies of scale, because you are negotiating different prices with different partners.”

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