“Mobile money transactions—particularly merchant payments—may have become a substitute for card payments. PesaLink, a bank P2P service, which was launched in 2017, enables 24/7 real-time payments of up to Sh999,999 across banks.”
This is a statement from the National Payments Strategy for the period 2022 to 2025 released by the Central Bank of Kenya (CBK) in February 2022.
It captures the ferocious competition between commercial banks and mobile network operators, mainly Safaricom for the vast mobile money payments landscape.
Every day, Kenyans deal an average of Sh21.7 billion in phone transactions, a pointer to the vital cog that mobile money has grown into in Kenya’s economy.
In 2022 alone, the Kenya National Bureau of Statistics shows that the total value of mobile money transactions stood at Sh7.91 trillion, a 15 percent increase from the value reported in 2021.
In 2022, Kenyans registered 2.28 billion mobile money transactions, 5.3 percent higher than in 2021.
The value of mobile money transactions carried out at agents, as a proportion of the gross domestic product, has risen from 23 percent in 2010 to 60 percent in the present environment.
This growth received a shot in the arm in August 2022 when merchant interoperability came into effect, allowing mobile money platforms across various operators to interact through seamless transactions.
This growing popularity of mobile money has unleashed a new frontier for spirited competition between Safaricom’s M-Pesa and commercial banks as Kenyans gradually shed cash-based transactions, which remain dominant, in favour of digitally enabled alternatives, notably mobile money.
When M-Pesa bucked the trend and delivered single-digit year-on-year growth (8.8 percent down from 30.3 percent the year earlier) in the full year ended March 2023, it caught many by surprise and raised a question as to whether the mobile money giant was decelerating in momentum and ceding ground to growing competition.
“M-Pesa has always been doing well, it has always been growing by double digits and this is probably one of the rare occasions, with the exception of the Covid-19 time when the person-to-person transactions were made free, that it hasn’t.
“We started pretty well this year and were growing by double digits but we saw a big dip pre-election, during and after the election. The business activity came down significantly and we are not immune to that because we support a large number of customers,” Safaricom chief finance officer Dilip Pal told the Business Daily.
This came at a time when the banking sector’s full-year earnings for the period ended December 2022 revealed a deepening penetration of mobile-driven alternatives with non-bank transactions accounting for over 95 percent of transactions.
NCBA Group chief executive John Gachora, who is also Kenya Bankers Association chairperson says banks have been keen to keep their transaction costs low to ensure they play a volume game in an arena where the leading telco enjoys the first mover’s advantage.
He adds that the value-add of loans for individuals cash-strapped while transacting provides an opportunity for banks to elbow their position further into the mobile money payments space.
Additionally, it is not just loans, riding on their massive balance sheets, banks are also able to give discounts and other services such as Buy-Now-Pay-Later, a form of mobile hire purchase.
“The telcos (working with banks) came and put a value-add to payments. And now, what we have realised is customers are asking, ‘What is the next value-add to what we are doing now?’ And that is the loan,” said Mr Gachora.
Analysts opine that the introduction of the banking sector-led paybill numbers as a rival to those of telcos presents a new frontier for the battle for the vast mobile money payments landscape.
KCB, Kenya’s largest bank by asset size, is the latest to launch its paybill number, which it says attracts zero transaction charges.
Equity Bank’s pay bill number has been a major rival to Safaricom’s till number in the market, earning the lender massive revenues in fees. But it also charges less than Safaricom.
“The key downside for payment using telcos has been the cost despite the convenience. Banks are starting to catch up to get into the game. When you are a follower in innovation and need to build some sort of scale, pricing is an important lever,” said Eric Musau, a financial analyst who heads upmarket research at Nairobi-based Standard Investment Bank.
Despite the relatively higher cost of telcos’ mobile money platforms, the fight for dominance of the mobile payments market might have taken a new twist after the CBK allowed Safaricom and Airtel to increase daily transaction limits on their mobile money platforms to Sh500,000, strengthening their capacity to compete with banks in the lucrative digital payments market.
Individuals and businesses are also allowed to hold Sh500,000 in telco wallets as mobile money evolves from person-to-person payments to an e-commerce tool. Users were previously allowed to hold up to Sh300,000.
“The underlying ecosystem of M-Pesa is very strong...The number of transactions per customer per month is growing by 16 percent and this means that customers are finding more and more use cases for them to use M-Pesa. So, I am not at all worried about the M-Pesa business,” says Mr Dilip Pal.
The CBK expects that mobile money will continue to cement its foothold as a rapidly growing alternative for cash-based and traditional electronic payments, such as cheques, in the Kenyan payments ecosystem.
"Cheque volumes and values continue to fall relative to the size of the economy, as individuals and businesses make greater use of other electronic payment instruments such as the Kenya Electronic Payments Settlement System and mobile money. In 2010 the value for cheques was Sh1.8 trillion or 57 percent of Gross Domestic Product. This proportion has reduced steadily to the current level of 22 percent in 2021,” the CBK states.
