"Mobile money transactions, particularly merchant payments, may have become a substitute for card payments. PesaLink, a bank P2P service 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 2022 to 2025, published by the Central Bank of Kenya (CBK) in February 2022.
It captures the fierce competition between commercial banks and mobile network operators, led by Safaricom PLC, for Kenya's vast mobile money payments landscape.
Every day, Kenyans make an average of Sh21.7 billion worth of mobile money transactions, an indication of the vital cog that mobile money has become 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, an increase of 15 per cent from the value reported in 2021.
In 2022, Kenyans registered 2.28 billion mobile money transactions, 5.3 per cent higher than the number of transactions in 2021.
The value of agent mobile money transactions as a percentage of GDP has increased from 23 per cent in 2010 to 60 per cent in the current environment. This growth received a boost in August 2022 when merchant interoperability came into effect, allowing mobile money platforms from different operators to interact through seamless transactions.
This growing popularity of mobile money has opened up a new frontier for spirited competition between Safaricom's Mpesa and commercial banks, as Kenyans gradually abandon cash-based transactions, which remain dominant, in favour of digitally enabled alternatives, particularly mobile money.
When Safaricom PLC's Mpesa bucked the trend and posted single-digit year-on-year growth (8.8 per cent, down from 30.3 per cent a year earlier) for the full year ended March 2023, it surprised many and raised questions about whether the mobile money giant was losing momentum and ceding ground to growing competition.
“Mpesa 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 the election 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," said Safaricom PLC Chief Finance Officer, Dilip Pal, in response to questions about MPesa's slowed revenue growth.
This came as the banking sector's full-year results for the period ended December 2022 showed deepening penetration of mobile-based alternatives, with non-bank transactions accounting for over 95 per cent of transactions.
NCBA Group Chief Executive Officer John Gachora, who is also the chairman of the Kenya Bankers Association (KBA), 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 a first mover advantage.
He adds that the added value of loans to individuals who are cash-strapped during transactions provides an opportunity for banks to extend their position further into mobile money payments.
Moreover, it is not just loans that banks can leverage on their massive balance sheets; they can also offer discounts and other services such as Buy Now, Pay Later (BNPL), a form of mobile hire purchase.
“The telcos (working with banks) came and put a value-add to payments. And now, what we have realized is customers are asking, ‘What is the next value-add to what we are doing now?’ And that is the loan,” Gachora said.
Analysts say the introduction of the bank-led paybill numbers as a rival to the paybill and ATM numbers provided by telecoms companies represents a new frontier in the battle for the country's vast mobile money payments landscape.
KCB, the country's largest bank by assets, is the latest to launch its paybill number, which it claims has zero transaction fees. Equity Bank's paybill number has already 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," says Eric Musau, a financial analyst who heads upmarket research at Standard Investment Bank in Nairobi.
Despite the relatively higher costs on the telcos' mobile money platforms, the battle for dominance in the mobile payments market may have taken a new turn after the Central Bank of Kenya (CBK) allowed Safaricom and Airtel to increase the daily transaction limits on their mobile money platforms to Sh500,000, strengthening their ability to compete with commercial banks in the lucrative digital payments market.
Individuals and businesses will also be allowed to hold half a million shillings in their telco wallets as mobile money evolves from person-to-person payments to an e-commerce tool. Previously, users were allowed to hold up to Sh300,000 in their wallets.
“The underlying ecosystem of Mpesa is very strong. If you see the volumes, they are growing 32.0 percent, value is growing 32.0 percent. The number of transactions per customer per month is growing by 16.0 percent and this means that customers are finding more and more use cases for them to use Mpesa. So, I am not at all worried about the Mpesa business,” says Dilip Pal.
The apex bank, CBK, expects mobile money to continue to consolidate its position as a fast-growing alternative to cash and traditional electronic payments such as cheques in Kenya's payments ecosystem.
"The volume and value of cheques continues to decline relative to the size of the economy, as individuals and businesses increasingly use other electronic payment instruments such as the Kenya Electronic Payments Settlement System and mobile money.
In 2010, the value of cheques was Sh1.8 trillion or 57 per cent of GDP. This has steadily declined to the current level of 22 per cent in 2021," the CBK said.