Markets & Finance

Equity banks on free cards to cut cost of deposits


Tellers at a Nakumatt outlet in Nairobi. Equity Bank has signed a deal with MasterCard allowing its customers to make purchases using cards. Photo/File

Equity Bank has stepped up the battle for customers who use plastic cards to buy goods and services after introducing a technology which enables cashless buying by placing mobile phones or cards in close proximity to a point-of-sale terminal without actual contact.

The first five million account holders to apply for the cards will get them free of charge.

Those who use the cards to make transactions will not be charged any fees, with the bank hoping to benefit from having a constant deposit base.

“Because there is no actual withdrawal of funds, the savings fund becomes constant almost like a fixed deposit,” said James Mwangi, CEO of Equity Bank at a briefing Tuesday.

Interest payment on customer deposits was the highest cost for Kenyan banks in 2012, accounting for 42 per cent of their total expenses.

All point of sales terminals will be fitted with the Mastercard technology that requires just passing the phone close to the machine and the transaction is done.

“This will make it possible for small transactions to be done at the retail level through the near-field technology,” said Mr Mwangi.

The cards are considered more secure from fraud and are compliant with global standard Europay-Mastercard-Visa, EMV, which is set to replace the fraud prone magnetic strip cards globally.

Banks have been moving towards the chip-based cards following the recent spike of ATM-related fraud that has eroded public confidence.

READ: High security bank cards to replace contemporary ones

“The suite of products that will be made available include mobile point of sale (MPOS) technology, which allows merchants to receive payments via low-cost add-ons linked to secure applications on their mobile devises, such as smartphones or tablets,” said Ajay Banga, Mastercard worldwide president and CEO.

The government and commercial banks are expected to also save on the cost of distributing notes and coins, which is estimated to be between 0.5 and 1.5 per cent of a country’s GDP.

“This is going to revolutionalise the national payment system to create a cashless system while ensuring security of our transactions,” said Prof Njuguna Ndung’u, the Central Bank of Kenya governor.

More than 5,496 Equity Bank agents will have the the near-field technology terminals. The card can either be a debit card that allows a user to access money in their account or a pre-paid one where the user loads a specific amount on to the card for use.

In September last year, Equity Bank agents did 1.88 million transactions valued at Sh11.7 billion.

The bank is capitalising on the ability of its core system to handle huge volumes of transactions with a capacity of 300,000 transactions per minute.

Central Bank data showed that as at September last year, goods worth Sh77.82 billion had been bought using cards through the 17,702 point of sale machines installed then.

The Mastercard payment system referred to as Paypass is present in 48 countries and accepted at nearly 550,000 merchant locations.

Its use in the lower end of the market is likely to also help in data collection from the informal segment of the economy, empowering policy makers.

In developed economies, the system has been used to run customer loyalty programmes.

To encourage banks to migrate to the EMV cards, Mastercard and Visa, have entered into a liability shift agreement where any fraud resulting from a transaction on a system that is not EMV enabled will be borne by the machine owner.

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