KCB and Equity have signed up MasterCard to issue their customers with new generation debit and credit cards, sparking a fierce battle for control of Kenya’s lucrative payments solutions market with rival Visa Card.
KCB and Equity are Kenya’s two top banks, accounting for more than half or 52.4 per cent of total deposit accounts.
Supplying the two banks with plastic money solutions puts MasterCard in a strong position to challenge Visa, which currently controls more than 70 per cent of the plastic money market.
The New York-based firm has exploited the ongoing migration to PIN and chip ATM cards to sign big-ticket deals with financial service providers, including banks, supermarkets and co-operative societies, for the supply of new cards that allow cashless transactions dubbed ‘tap and go’.
Signing up KCB and Equity effectively leaves Visa with less than half of the Kenyan banking market because small lenders such as Housing Finance, Consolidated Bank and Habib Bank use their own domestic proprietary cards that do not ride on Visa or MasterCard.
But Visa is not taking the challenge lying down, having announced plans to introduce its cashless payment solution dubbed payWave in Kenya to defend its turf.
Users of payWave simply wave the card at a point of sale (PoS) device rather than inserting or swiping it.
MasterCard has also bagged a deal, in partnership with Equity Bank, to process and disburse money to the elderly, persons with severe disabilities, orphans and other vulnerable children under the State-funded Sh12 billion welfare scheme known as ‘Inua Jamii’.
The big-ticket deals have turned Nairobi into a battleground for the two multinationals that are seeking dominance in the Kenyan market as it transits to electronic payments in the wake of a mobile money revolution driven by Safaricom’s M-Pesa.
Visa opened its Nairobi office in 2012, but has historically enjoyed a near-monopoly in Kenya.
MasterCard opened its regional hub in Nairobi the same year and has so far bagged card issuance deals with Equity, KCB, Chase Bank, I&M Bank, Diamond Trust Bank, GT Bank and Jamii Bora.
“A key focus for us is to jointly develop innovative payment products such as contactless solutions that make it easier for consumers to benefit from the safety and security of electronic transactions,” said James Wainaina, MasterCard’s vice-president and area business head, East Africa.
“Small and mid-sized (SME) merchants want to increase revenue and we help them do that through the higher sales they get when customers choose card or electronic payments over cash.”
Mr Wainaina argues that the combination of a rapidly expanding middle class, high financial literacy and robust technology offers opportunity to push for a cashless society in Kenya.
There were 11.4 million payment cards in use at the end of February this year and debit cards account for 89 per cent of the total or 10.2 million cards.
Central Bank of Kenya statistics show that Equity controls 44 per cent of Kenya’s total deposit accounts, making it a prized catch for MasterCard.
Payments for goods and services made using ATM, prepaid and credit cards grew by a fifth to Sh120.6 billion last year, whetting the appetite of banks and telcos who stand to rake in billions in commissions from processing retail payments.
This, however, compares poorly with the Sh1.9 trillion Kenyans moved through mobile money platforms in 2013, mostly to pay for goods and utility bills such as water, rent, electricity and shopping.
Equity and KCB said they were attracted to the MasterCard platform by its contactless payment technology - technically known as Near Field Communication (NFC) technology - which the banks intend to adopt to drive cashless retail payments.
The two top-tier lenders said customers will tap their MasterCard PayPass debit and credit cards on a mobile phone or point of sale (PoS) device to settle retail bills – strengthening their position in the mass market for greater income.
“While we will be issuing contactless cards on many different streams, we must also build an acceptance infrastructure where these cards can be run,” Joshua Oigara, the KCB chief executive said in a statement.
“These include the retail stores, parking bays, public transit and government payments.”
MasterCard and KCB have inked a deal to issue five million MasterCard-branded prepaid, debit and credit cards in the next five years.
Equity last week announced plans to issue 300,000 smartphones to retailers such as kiosks, fast-food outlets and car parking operators to facilitate ‘tap and go’ cashless transactions with a view to growing commissions from its merchant processing business.
The Nairobi bourse-listed lender has so far issued more than three million high-security chip-and-PIN ATM cards to its customers, replacing the magnetic stripe plastics that are prone to fraud.
James Mwangi, the bank’s chief executive, said cell phones are a cheaper and more convenient point of sale devices compared to the traditional magnetic stripe card readers.
Equity makes Sh40 million monthly in commissions from processing Sh1.8 billion worth of payments every month and expects the new devices to help grow this income stream.
Kenya’s total number of PoS devices stands at 21,647 and is viewed as the missing link to getting more consumers to cashless lifestyles.
This translates to one PoS device for every 2,000 users hence the decision to turn to smartphones as checkout points.
The battle for control of the payments solutions market has sucked in top supermarkets who are now issuing prepaid cards that also act as loyalty cards.
Kenya’s biggest retailer by revenue, Nakumatt has unveiled the Global Prepaid MasterCard service while fourth-placed Naivas is working with Visa to roll out its prepaid card.
Visa in partnership with Chase Bank and Airtel have launched the Airtel Money Visa card that enables the telcom firm’s subscribers to withdraw cash from any Visa-branded ATM.
The MasterCard and Visa will also have to keep an eye on Safaricom, which has been a driving mobile money payment solution in the Kenyan market using its Lipa Na M-Pesa service.
Safaricom has so far enrolled more than 100,000 merchants, including kiosks, SMEs, fuel stations, pharmacies, matatu saccos, bars and restaurants that allow consumers to pay their bills via mobile money.
Safaricom charges retailers a one per cent transaction processing fee that is much lower than the average three per cent levy that banks charge for use of their PoS solutions.
“M-Pesa is continuously innovating to provide business payment solutions for large, medium and small enterprises,” Safaricom said in a statement to the Business Daily.
Visa told the Business Daily in an earlier interview that it has 26 out of Kenya’s 44 banks, on whose behalf it issues debit and credit cards, certifies security systems and processes payments on its international network.
Analysts argue that the fierce battle for Kenya’s payments solutions market is hinged on the planned cessation of cash transactions in payment for government services and Kenya’s fast adoption of new technology such as mobile cash.
Kenya’s banking industry comprises 43 commercial banks and a mortgage finance company.