The battle for electronic payments in Kenya

By Kirsty Berry | 5 September 2018

According to the World Bank, almost 2.5 billion people in the world have no access to banking infrastructure, with an estimated 1.1 billion people unable to prove their identity – one in every seven individuals. These issues resonate in sub-Saharan Africa, where just four years ago, 66% of the population didn’t have a bank account.

Today, financial service access in Kenya is very high in comparison to its neighbours, which has been largely attributed to the adoption of mobile payments in the country. The high penetration rate of M-Pesa is world renowned, and has yet to be successfully replicated elsewhere. Kenya appears to have become the location for the big bang of mobile payments, where all the right elements were in the right place at the right time: high unbanked populations, high mobile penetration, the use of USSD, the simplicity and convenience of the service offering, low KYC restrictions – and of course, the fact that Safaricom had a monopoly on the market.

There is no getting away from Kenya being the poster-child for mobile payments. According to BAB, M-Pesa had 27 million registered users, more than 136,000 agents, and 260,000 active retail outlets in 2017. Until recently, mobile payment users outnumbered bank account holders, however, according to CGAP this changed in 2015, with more than 30% more bank accounts now than mobile money accounts. By 2016, almost seven in 10 Kenyan adults had an account with a formal financial institution (bank and/or a microfinance account) – 97% of which also had a mobile money account (CFI). 

In order to compete with initiatives such as M-Pesa, traditional banks have really had to up their game in terms of their value-added remote banking services. Competitive initiatives have seen financial institutions (FIs) teaming up to compete with the mobile payments providers, enabling account holders at banks across the country to send money to each other instantly.

One scheme FIs in Kenya are using to help improve financial inclusion and compete with mobile payments providers is agency banking, which gives consumers access to financial services in more remote, and previously underserved, parts of the country – an area in which M-Pesa has seen huge success. According to the Central Bank of Kenya, in June 2017, there were over 60,000 agents from 18 commercial banks, as well as five microfinance institutions across the country. In just one year (between June 2016 and June 2017), transactions made via these banking agents increased by more than 55% in value. 

The growth in Kenya’s banked population has led to a rise in debit card penetration, however, Kenya’s payment card market is still developing, with just three in 10 consumers owning a payment card in 2017 (BAB). This low penetration and the lack of acceptance points has resulted in an average of just 16 transactions per card per year.

Another way FIs are seeking to increase the use of payment cards in the country is through prepaid cards. Most banks in Kenya offer these types of payment card and some have arrangements in place with employers so that they can pay their employees directly via a prepaid salary card. By providing employees, that might otherwise not be in the banking system, with their salary on a prepaid card, it ensures that consumers will adapt to card-based behaviours, which will, hopefully, become habitual and increase the usage of all payment card types across the country.

There is no doubt that Kenya will always be the face of mobile payments globally – and as such mobile has undoubtedly become the gateway to the national adoption of more advanced payment services. Financial institutions across the country are coming up with innovative ways and initiatives to compete with mobile payments providers, the happy result being that financial inclusion is on the up. With the volume of non-cash transactions and payment card penetration increasing (albeit slowly) throughout the country, the battlefield lines for electronic payments adoption have well and truly been drawn.

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