The value of payments made through cards last year dropped for the first time in six years amidst the lockdown measures and continued preference for mobile money services.
Central Bank of Kenya (CBK) data shows the value of payments through point of sale (POS) machines dropped by 3.8 percent in 2020 to Sh157.72 billion from Sh164.09 billion in 2019.
This drop was a reverse from the 33.3 percent and 22.12 percent growth recorded in 2019 and 2018 respectively.
Despite the drop in absolute value, the number of transactions through POS machines increased by 1.49 million or 4.5 percent to 34.71 million in the year.
The banking industry regulator is attributing low usage of cards to the poor network of POS terminals nationally and mobile payment becoming a substitute for card payments.
"The usage of cards in Kenya is still relatively low. This may be due to the poor network of POS terminals nationally, resulting from the high cost of POS terminals and cost of acceptance for the merchant, negative perception of consumers due to incidents of fraud and poor stability of card payment systems," the CBK says in its draft Kenya National Payments System Vision and Strategy 2021-2025.
"It may also be the case that mobile money transactions – particularly as a means of making payment to a merchant – have become a substitute for card payments."
Similarly, the value of transactions through ATMs recorded grew at the slowest pace since 2015 at 1.5 percent to Sh650.41 billion from Sh641.14 billion in 2019.
However, the number of transactions dropped by 15.3 percent or 12.06 million to 66.51 million.
The fall in card volumes is expected to hit the non-funded income line of banks, which have in recent years relied on it to cover for lower interest income caused by lower interest rates and slow growth in private sector credit.
The reduction in value of card transactions last year was, however, out of banks’ hands due to restrictions imposed to combat the Covid-19 virus, which resulted in reduced footfall in shopping malls and retail stores, as well as reduced business activity.
Many people also opted to pay using mobile money, which unlike cash and card payments does not involve any physical contact between buyer and seller.
The government’s Covid containment measures that included closure of bars and restaurants in the second quarter of the year also cut off a key avenue from usage of payment cards.
Although the bars and restaurants were reopened later in the year, activity remained subdued as operating hours were cut by curfew protocols.
Similarly, massive job cuts and unpaid leave for workers led to a decline in consumer spending.
At the same time, the government actively promoted the use of mobile money payments as a way of avoiding the coronavirus, bringing in several measures to push this option.
These included raising the ceiling for mobile money wallets and doubling of the daily transaction limits to Sh300,000.
The charges on money transfers below Sh1,000 were also scrapped to discourage the use of hard cash and help contain the virus, and as a result the volume and value of transactions below this threshold increased by 114 percent and 200 percent between February and October 2020, according to the CBK.
Charges for moving cash between mobile wallets and bank accounts were also removed, encouraging people to use mobile money.
Mobile money services also carry the advantage of having multiple utility, including payment of bills and is more widely available than POS points.
These regulations saw customers reduce their usage of debit cards, credit cards and prepaid charge cards during the pandemic.
Latest data shows Kenyans moved Sh5.21 trillion through their phones last year, a 20 percent rise from Sh4.34 trillion the previous year.