Hits and misses as Kenya transitions into a cashless economy

Hits and misses as Kenya transitions into a cashless economy

In the early 2000s, it was almost inconceivable that someday one would walk around without cash and still pay for goods and services.

Today, you can go for months without touching banknotes and coins and your life will still run smoothly.

Over the last few years, rapid digitalisation of financial services in Kenya has created the aura that soon we will have a cashless economy.

M-Pesa, launched in 2007, has revolutionised mobile payments. Kenya had embraced digital transactions even before the Covid-19 pandemic.

The pandemic, however, has accelerated digital transactions, not only because they are convenient but also because the Ministry of Health advised citizens to avoid physical contact with others.

On March 15, 2020, President Uhuru Kenyatta asked Kenyans to limit the use of cash when making transactions as one of the means of curbing the spread of the coronavirus.

Data from the Central Bank of Kenya shows that there were 68.54 million registered mobile money accounts in July 2021 compared to June’s 67.78.

Many businesses, including hospitality, shopping malls and fuel stations, accepted Visa and Mastercard payments, with many others also accepting M-Pesa.

Kate Wanyama, a journalist, says with great pride that she has used digital transactions for as long as she can remember.

“Going fully cashless has been the goal for me. I do all my transactions using the Mastercard, and now I can pay mama mboga using M-Pesa. I pay all my bills via digital transactions. I find it very convenient. What motivates me today to use digital transactions is Covid-19 – face-to-face interaction is avoided,” she says.

As a result, she has not been carrying cash.

“Till numbers should be made mandatory. This will be in favour of everybody to pay via M-Pesa without paying the transaction fees,” she opines.

But the question in everyone’s mind is whether Kenya lost an opportunity to make matatu cashless during the pandemic.

Cashless transactions

For instance, though the government announced several measures to lure merchants to cashless transactions, such as low charges, some matatu operators frowned upon them. Some operators even warn commuters not to pay with M-Pesa.

“Usilipe na M-Pesa hapa (We do not accept M-Pesa payments),” and “Hii gari sio ya Safaricom (This vehicle is not owned by Safaricom)”, are some of the warnings seen on matatus.

Nixon Kanali, the tech editor at TechTrendsKE, an online publication that covers technology and business trends, says that indeed Kenya missed the opportunity.

“Safaricom tried introducing it with a number of matatus but things just didn't work out. I believe the sector was ready to adopt it but it’s the consumer that in some way contributed to the low uptake,” he says.

“We saw cases of commuters paying using M-Pesa and then reversing the payment later. Of course, this kind of behaviour was going to slow down the uptake. And of course, another major reason why we missed out was how the industry is run, with cartels who also want their share.”

Despite having arguably the world’s most successful and robust mobile money market, he says, the country’s economy is not cashless.

“The pandemic pushed our cashless economy market to the next level, of course due to some regulations that the government set when the pandemic hit. While cash is still the preferred payment method for the majority of Kenyans, cashless payments are booming not just in Kenya but all over the world,” he says.

PwC’s Payments 2025 & Beyond report, published this year, predicts that global cashless payment volumes are set to almost double from 2020 to 2025, and triple by 2030.

George Njoroge, the managing director of East Africa Data Handlers, also says Kenya has had misses in the pursuit of a cashless economy.

He says there are transaction delays due to poor infrastructure because consumer numbers have increased, with demand overpowering capacity.

But Mr Kanali disagrees.

“Being one of the most successful and robust mobile money markets in the world, I don’t think we really have any misses for going cashless,” he says.

Cashless society

“The convenience that comes with having a cashless society is actually massive. You no longer need to carry wads of cash, plastic cards or even queue up for ATM withdrawals.”

Samora Kariuki, the founder and editor of the newsletter Frontier Fintech, explains how Kenya compares with the region in the adoption of cashless systems.

“Societies are different and adoption of cash is based on societal issues. Kenya, for instance, has a big internal remittance market due to work-based migration that drives the demand for electronic payment such as M-Pesa,” he says.

Mr Kariuki notes that there is a culture of theft largely driven by higher urbanisation, which also drives cashless payments due to security.

“In some countries, there's no internal remittance and in some cases there's no theft culture, so cash works perfectly. If you go to Mogadishu, you will see people carrying cash in the open and thus the demand for electronic payment isn't high,” he adds.