Kenyan banks are facing a logistic crisis of supplying customers with cheques after dominant banknotes and security printer De La Rue announced plans to freeze local operations from March 31.
The banks are scrambling to seek alternative printers as the lenders advise their customers to stockpile cheques after the multinational made the shock announcement on January 20 to suspend operations on low business.
The moves by the local banks will stoke the debate over the future of cheques as their popularity falls significantly in favour of electronic money transfers, debit and credit cards as well mobile money services like M-Pesa.
Equity Group has asked customers to make bulk orders for chequebooks as they seek a replacement for the multinational that dominates a business that has other players such as Sintel Security, Punchlines Ltd, Ellams Products and Tally Solutions.
The lender has asked its customers to place sufficient orders lasting a minimum of six months as Absa Kenya puts a similar notice on Thursday as its mulls over seeking orders from South Africa.
KCB reckons it will fall back to other vendors in the wake of the freeze notice from the UK security printer.
Citi Bank has asked its clients, mainly corporates and wealthy individuals, to make adequate chequebook orders by next Tuesday and will cease offering bankers cheques following De La Rue’s move.
“Clients who currently use cheques for their operations are advised to make orders for additional stock as soon as possible and by 28 February 2023 at the latest. We shall unfortunately not be able to process orders received after this date,” said Citi Bank in a notice seen by the Business Daily.
“Citibank will discontinue offering corporate and banker’s cheque issuance services as part of our product portfolio upon the expiry of the acceptance period for the De La Rue printed cheques”
But while many businesses have gone slow on accepting cheques, they are still a popular form of payment among elderly people, many of whom fret at using cards or electronic transfers.
In the UK, the future of cheques was in doubt a few years ago when the payments industry discussed phasing them out by 2018, but it was forced into a change of heart by MPs who said no viable alternatives for the vulnerable and elderly were in place.
In Kenya, the usage of cheques has slowed down in the last decade, losing out to digital payment channels which are more efficient for businesses and individuals.
While the value of cheques went up from Sh2.05 trillion in 2011 to Sh2.55 trillion last year, the number issued in the payments fell from 18.2 million to 15.69 million in the period, says the Central Bank of Kenya (CBK).
Meanwhile, the volume of cash transacted through mobile money agents rose by nearly six times to hit Sh6.87 trillion in 2021, from Sh1.17 trillion in 2011.
Bulk payments made through real-time bank transfers have also gone up by a significant margin, from Sh21.9 trillion in 2011 to Sh34.55 trillion in 2021. “At a broader level, cheque volumes and values continue to fall, as individuals and businesses make greater use of electronic payment instruments, particularly during the Covid-19 pandemic,” said the CBK.
De La Rue says its Nairobi plant had the capacity to print 60 million cheques in a year.
Besides the reduced use of cheques, De La Rue also suffered from a reduced need for new banknotes—its core operation in Kenya.
The global firm, which prints notes for Kenya through the local joint venture that is 40 percent owned by the Kenyan government, will release the last lot of workers by March.
The firm said it does not expect any banknote printing order from the CBK for at least the next 12 months due to low market demand.
While Kenya has struggled to retain and attract multinational manufacturers, it has recently become a magnet for technology firms and financial service companies seeking a hub for a larger share of the African market.
On De La Rue Kenya, multiple workers who have since been released told the Business Daily that the banknote printer has shed jobs since mid-last year, culminating in the layoff of 300 workers.
De La Rue late 2018 won an £85 million (Sh13 billion) tender to design and manufacture Kenya’s new currency generation notes as the country moved to remove the faces of individuals from its currency.
“The issue of technology is also affecting us because, with mobile banking, the demand for security documents has dropped,” said a De La Rue worker.
The firm’s authentication division supplies a range of physical and digital solutions such as tax stamps, cheques and bank cards.
Freezing Kenyan operations means De La Rue will now be left with three banknote sites — UK, Malta and Sri Lanka — down from four at the beginning of the year and five in 2020, highlighting the declining demand for banknotes globally as digital transactions gain traction.
De La Rue has been working in Kenya for over 25 years where it serves other markets such as Tanzania, Uganda, Zambia and Rwanda.
“De la Rue is a major player in terms of a secure, tried and tested flagship. It will be interesting to see which other player will step up to fill the gap,” said a top bank executive who sought anonymity.
De La Rue’s results for the six months ended September 2022 showed profits from the Kenyan unit had dropped by 58 percent from £1.2 million (Sh184.5 million) to £0.5 million (Sh76.9 million) on reduced revenue, highlighting the impact of low business.
Profit for the full year ended March 2022 had also dipped from £3.1 million (Sh476.6 million) to £2.2 million (Sh338.3 million).
The Treasury earned £0.9 million (Sh138.4 million) from De La Rue’s full-year profit for the 40 percent stake it acquired at £5 million (Sh768.7 million) in 2019.
