How M-Pesa Mauled Cards & Took Kenyan Banks’ Lunch Money In 2020

Card payments have never been quite as popular in Kenya as the ubiquitous mobile money platform that is M-Pesa. Nevertheless, card transactions in Kenya have risen every year since 2014.

However, for the first time in six years, Kenya’s banking regulator, the Central Bank of Kenya (CBK), has reported a decline in the value of card payments through point of sale (PoS) machines.

In the unusual year that was 2020, the value of PoS card payments fell by 3.8 percent to KES 157.72 Bn (USD 1.44 Bn) from KES 164.09 Bn (USD 1.49 Bn) in 2019, even as the number of such transactions increased by 1.49 million or 4.5 percent to 34.71 million in 2020.

The 3.8 percent dip in the value of card payments in 2020 is a massive deviation from the 33.3 percent and 22.12 percent growth recorded in 2019 and 2018 respectively.

Indeed, Kenyan banks lost KES 1.26 billion (USD 11.55 Mn) worth of card payment business (debit cards, credit cards, and prepaid cards) between March and November last year. Essentially, the value of payment transactions by debit, credit, and prepaid cards declined by 8 percent during that period.

All of this coincides with a period when the card issuers, i.e Kenyan banks, are facing a torrid time having posted the lowest 11-month pre-tax profit since 2020.

It’s not out-of-place to assert that the fall in card volumes have hit the non-funded income line of banks, which in recent years, has been relied on to cover for lower interest income caused by lower interest rates and slow growth in private sector credit.

As the CBK explains, one of the possible factors that led to the decline in card payments is the “poor network of POS terminals nationally, resulting from the high cost of POS terminals and cost of acceptance for the merchant, negative perception of consumers due to incidents of fraud and poor stability of card payment systems.”

But it’s more likely that the biggest factor that gave rise to the low card payments situation is: “mobile payment, particularly via M-Pesa, becoming a substitute for card payments,” as the CBK also notes.

M-Pesa, the mobile money platform run by Kenya’s largest telco, Safaricom, is known to account for up to 98 percent of mobile payments in Kenya. M-Pesa is, in fact, the leading mobile money service in Africa, with over 30 million active customers and nearly 200,000 agents in Kenya alone.

Generally, mobile money transactions are the most common form of payment in Kenya and M-Pesa is the go-to platform. Data from the Central Bank of Kenya (CBK) show that in 2018, mobile money transactions amounted to KES 3.98 Tn (USD 38.5 Bn); the equivalent of half the country’s GDP.

In 2019, Kenyans moved KES 4.35 Tn (USD 39.72 Bn) through mobile devices. Back in 2014, an astonishing equivalent of 87 percent of the country’s USD 55 Bn GDP passed through M-Pesa.

When the pandemic hit Kenya last year, the government recommended mobile payments as a means of curbing the spread. Hence, fee waivers were declared for mobile money transactions of certain amounts. 

The charges on money transfers below KES 1 K (USD 9.13) were scrapped and as a result, the volume and value of transactions below this threshold increased by 114 percent and 200 percent respectively between February and October 2020, according to the CBK.

Also, charges for moving cash between mobile wallets and bank accounts were also suspended, encouraging people to use mobile money. All the fee waivers were suspended on December 31, 2020, and Safaricom even reported a 14.5 percent reduction in the revenue generated from its mobile money service, M-Pesa, due to the fee waivers.

Evidently, those incentives nudged Kenyans to embrace contactless mobile payments like never before. The latest data shows Kenyans moved KES 5.21 Tn (USD 47.5 Bn) through their phones in 2020, a 20 percent rise from KES 4.34 Tn (USD 39.6 Bn) the previous year.

Whereas, card payments, which involves some form of contact between the receiver and the sender, saw much less use than it had seen for half a dozen years. In a way, mobile payments mauled card payments and took the lunch money of Kenyan banks.

The decline in the use of cards can also be attributed to the further complications caused by the Covid-19 pandemic. Last year, the Kenyan government ordered bars, restaurants, and clubs to stay shut for several months as part of Covid containment measures.

When the restrictions were eventually eased and those public relaxation spots opened up later in the year, they were still hamstrung by strict curfew protocols. These outlets are known to be key avenues for card payments and being shut and stifled for so long means that card use would have suffered considerably. Besides that, massive layoffs, pay cuts, and unpaid leave for workers led to a decline in discretionary income and consumer spending.

And then, there’s the fact that mobile money services also come with the perk of multiple use cases, including payment of bills, and is more widely available than POS points.

It can be said that this and the other points earlier made would have contributed in some way towards making Kenyans embrace mobile payments while reducing their usage of debit cards, credit cards, and prepaid charge cards in 2020.

Featured Image Courtesy: The Economist