Banks, Safaricom War Over Cashless Payments Share

A war is brewing between banks and Safaricom over a share of the multi-billion shillings payment sector after the latter slashed M-Pesa commission charges.

Commercial banks have started increasing advertising campaigns for a piece of the cake, after the Central Bank of Kenya (CBK) reinstated charges on mobile money transactions.

Already, lenders have warned consumers of the new charges, even as they increase their marketing initiatives for consumers to use Automated Teller Machines (ATM) cards.

“Following the recent announcement by the Central Bank of Kenya (CBK) we would like to notify you that the transaction charge between banks and mobile money wallets will be reinstated effective 01 January 2023,” NCBA bank said in an email to its customers.

The charges had been waived on March 16, 2020 by CBK as part of the Covid-19 pandemic mitigation measures will see Kenyans pay more for banking transactions.

Held between a rock and a hard place, Equity Bank, KCB Stanchart, Coop and Family Bank are some of the banks that have either slashed transaction charges or are running media campaigns with incentives to persuade their customers to make payments using their bank cards. The advertisements are running on youtube and SMSs platforms.

For example, Coop and Family banks say they have reduced their payment card charges to zero to push customers to transact using their debit cards with the hopes of reaping in the future.

Card payments attract an average of about 2.5 percent per transaction across the industry. It is, however, not clear how these banks are paying for the costs due to payment card processors such as Visa and Mastercard.

While the reinstated bank charges to M-Pesa will help banks to get a share of the payment billions, the charges will help boost bank payments, as consumers now seek how to cut fees and commission charges.

Considered among the most critical payment systems in the country, it is estimated that nearly 40 percent of Kenya’s gross domestic product (GDP) is transacted through M-Pesa, indicating how entrenched the mobile money system is across the economy.

A survey by global digital payments solution provider Visa shows that an estimated 71 percent of businesses in Kenya use cash as a means of payment, compared to higher use of cash by businesses in South Africa (91 percent) and Nigeria (94 percent).

Further, the less use of cash among Kenyan businesses is reflected in the high preference for mobile wallets which is at 56 percent in Kenya compared to Nigeria (14 percent) and South Africa (7 percent).

“Cash is the highest used option across all markets though relatively lower in Kenya. Mobile wallet payments are highest in usage as well as preference in Kenya. Usage of a personal account for business payment is also prevalent in Kenya. Bank transfer is widely used in Nigeria,” the survey stated.

Safaricom has already indicated plans to review the tariffs applicable on the new tariffs, according to a December email to merchants.

“In an effort to ensure affordability and mitigate the prevailing economic challenges faced by customers we would like to notify our valued partners on the reduction in charges for paybill (C2B) and business to customer (B2C) tariffs,” Safaricom said.

“In the new changes, Business to M-Pesa charges have been reduced by an average of 61 percent while M-Pesa to Business charges have been reduced by an average of 47 percent for transactions. Transactions below Sh100 remain zero rated,” the telco told its merchants via email.

Central Bank of Kenya data shows the value of payments through point of sale (POS) machines which support card payments increased by 1.49 million or 4.5 percent to 34.71 million in the year 2021 but use of cards decreased.

The banking industry regulator attributes low usage of cards to the poor network of POS terminals nationally and mobile payment becoming a substitute for card payments.

Safaricom seems to be ahead of the pack after it partnered with Visa last June to launch a virtual card, enabling millions of M-Pesa users to make digital payments globally, and giving Visa extended reach across Africa.

The launch of the M-Pesa GlobalPay Visa virtual card follows a partnership between the two companies forged in 2020 to develop “products that will support digital payments for M-Pesa customers.”

It enables 30 million M-Pesa users to make cashless payments at Visa’s global network of merchants. Users can activate the virtual card through the M-Pesa mobile app or by USSD.

Previously, M-Pesa users could only make mobile money payments within M-Pesa’s network of nearly 400,000 merchants.

The American card company perhaps saw the virtual card option as one of the most viable ones to remain in Kenya given the proliferation of mobile payments even as Safaricom sought a solution to capture international payments.

The developments come at a time when Safaricom continues to grow its dominance in the payment space against strong headwinds in the political front to have it split into a telco and a bank.