In a country still dominated by cash, M-Pesa continues to break records in Kenya. However, the share of the adult population with a bank account has risen sharply in recent years, and while card-based payments declined sharply in 2014, there are signs of large-scale growth potential in the prepaid sector
Payment card penetration in Kenya stood at 25 cards per 100 individuals in 2016. The low uptake is partly a result of the country’s dependence on cash, the limited acceptance of payment cards at merchant locations, and the growth of mobile payment solutions such as M-Pesa and PesaPal.
Cash accounted for 91.1% of the country’s payment transaction volume in 2016.
Card-based payments declined by nearly one-fifth in 2014, due to the convenience and cost efficiency of mobile-based retail payment solutions. As of March 2016, M-Pesa had 100,744 agents, 24 million registered users, more than 252,000 active retail outlets and 54 customer service desks in Kenya.
Unlike banks, mobile payment solution providers offer services to smaller merchants and charge low processing fees. Safaricom charges retailers a 1% transaction processing fee on the Lipa Na M-Pesa service which is much cheaper that the average fee of 3% for bank card payments.
In July 2016, Safaricom piloted a payment card linked to a consumer’s M-Pesa account. The card is NFC-enabled and uses chip-and-PIN technology.
Agency banking model
Banks in Kenya have adopted an agency banking model in an attempt to bring more people into the formal banking system.
According to the Central Bank of Kenya, 35,789 agents from 16 commercial banks carried out 58.2 million transactions worth $3bn in 2014.
Barclays Bank partnered with the Postal Corporation of Kenya (PCK) to launch agency banking in March 2016. The service enables customers to make cash withdrawals, bill payments and balance enquiries at PCK outlets.
These outlets also serve as collection points for funds transferred via the bank’s money transfer service, Cash Send. PCK plans to introduce its agency banking service in phases, initially offering them at 182 outlets and servicing the remaining 218 outlets by the end of 2016.
KCB, Equity Bank and Co-Operative Bank also offer agency banking services.
The portion of the population aged 15 or above with a bank account rose from 54.6% in 2012 to 81.4% in 2016, according to the World Bank’s Global Findex survey. An increase in banking penetration drove demand for current accounts and debit cards.
Demand for Islamic banking is rising in Kenya, and as of 2015, Sharia-compliant products accounted for 2% of all banking products.
To capitalise on this trend, KCB launched an Islamic Banking unit, KCB Sahl Banking, at six of its branches in April 2015. In March 2014, Standard Chartered Bank launched its Islamic banking service, Saadiq, offering the Fatwa current account, the Saadiq All-in-One account and the Saadiq Hifadhi account.
Growing payment infrastructure
The number of POS terminals in Kenya rose from 18,478 in 2012 to 27,854 in 2016, and is expected to reach 55,400 by 2021.
Most POS terminals have switched from landline to mobile technology. As merchants recognise the benefits of switching from traditional POS terminals to ones with more features and mobility, the industry registered an increase in the uptake of mobile POS (mPOS) terminals.
In February 2016, Barclays launched its mPOS terminal in Kenya, which can be used to make payments for transport, home deliveries and entertainment products using Visa, MasterCard or American Express. The bank partnered with Pewin Cab Company to test the device through a pilot project.
In February 2013, MasterCard, Equity Bank and Ezetap partnered to launch a mPOS solution in the form of a card reader that can be plugged into a tablet or smartphone.
Uptake of prepaid cards
The number of prepaid cards in Kenya rose from 27,558 in 2012 to 2.3 million in 2016. The transaction value grew from $7.9m in 2012 to $9.4m in 2016.
Banks serve various consumers – such as students and salaried individuals – through prepaid cards. In July 2016, Equity Bank launched its MasterCard-branded prepaid card for Maseno University students, enabling them to receive loans, conduct transactions and withdraw cash from ATMs.
In September 2015, Ecobank launched the Visa SalaryXpress prepaid card, which enables Kenyan employers to load salary payments for employees.
The National Payment System Act 2011 regulates payment systems and service providers and aims to ensure that service providers conduct their businesses prudently and in accordance with the law. The act grants the central bank the power and authority to oversee all operational payment systems.
Prior to the commencement of business, an electronic payment service provider must apply to the central bank for authorisation by submitting an application in the form of a First Schedule. The application must be accompanied by the following:
- Registration documents, including a Certificate of Incorporation, a memorandum and articles of association
- For a mobile payment service providers, a certified copy of a license from the Communication Commission of Kenya
- The concerned institutions are required to continuously monitor all complex, unusual, suspicious or large transactions.