PesaLink sounds death knell for cheques

The new mobile payment system banks launched last week is likely to significantly reduce the use of cheques, payment cards and electronic fund transfers (EFTs), analysts say.

Analysts at Ecobank Africa said the new system, dubbed PesaLink, would reduce reliance on the traditional cards, cheques and EFT payments due to an advantage on the shorter settlement cycle. Bank customers will be able to move money between accounts on the PesaLink system in real-time.

“Cheque and EFT payments have, for a long time, been the face of retail payments...we think that a uniform mobile switching platform could sound the death knell for cheques and EFT payments, which have a longer settlement period,” said the Ecobank analysts in a note on PesaLink released this week.

“Card and point-of-sale payments have been facing stiff competition from mobile payments, with the former’s share of total payments declining from 20 per cent in 2013 to 13 per cent as at the end of the 2015 financial year.”

The Ecobank analysts project a 31 per cent year-on-year growth in mobile payment volumes to 1.4 billion transactions, based on expectations of lower transaction costs should the bank platform kick off.

Standard Chartered, Co-operative Bank, Barclays Bank,  Commercial Bank of Africa, I&M Bank, Diamond Trust Bank, Gulf African Bank, Guardian Bank, Victoria Commercial Bank, Credit Bank, Prime Bank and Middle East Bank customers have access to the service so far, according to Kenya Bankers Association.

About 27 more banks, which are carrying out pilot tests in line with Central Bank of Kenya (CBK) requirements, are expected to come on board the new platform within a month. The new platform could also start to eat into the mobile payments market that is dominated by Safaricom’s M-Pesa, the analysts said, due to a cost advantage on fees.
Standard Investment Bank head of research Francis Mwangi sees cards as potentially the most affected by the new platform, saying they are the easiest to substitute for a mobile phone.

“While there will be a reduction of use of EFT and cheques for payments, cards are likely to be the most cannibalised by the new platform,” said Mr Mwangi. “You have a situation where a bank customer can make withdrawals from the account using a mobile phone and make payments quickly, negating the need for a card for payments.”

Latest CBK data shows the number of payment cards in issue fell to 13.7 million by the end of September 2016, from 14.5 million a year earlier. The number of monthly transactions also fell in the period, from 19.4 million in September 2015 to 17.6 in Septembers 2016.

Mobile transactions have been growing, standing at Sh283.8 billion in 130.7 million transactions for September 2016 compared to Sh247.5 billion in 96.3 million transactions in September 2015.