End of free mobile-money transfers dims light for cashless economy

The end of free mobile-money transfers below Ksh.1000 which comes into effect on January 1, 2021 has dimmed the quest for a cashless economy.

This is as the majority of Kenyans remain price sensitive to costs accompanying mobile-money transfers which will likely see many opt back to the use of cash.

The waiver of fees for mobile money transactions of up to Ksh.1000 effected at the end of March by the Central Bank of Kenya (CBK) saw digital transactions record their best year yet.

For instance, according to data from the CBK, the monthly volume of person-to-person transactions increased by 87 per cent between February and October 2020.

The rise in the digital transactions directly correlates to the waiver on fees with transactions of up to Ksh.1000 for instance growing by 114 per cent while 2.8 million additional customers are using mobile-money.

More data from the reserve bank shows mobile-money subscriptions, number and value of transactions have a set a new month on month record since May this year to September.

For instance, mobile money subscriptions stood at 64 million in September against a lower sum of 59.4 million in April while the number of transactions hit 163.3 million from 125 million in the same period.

The value of mobile transactions as of September meanwhile touched a high of Ksh.483.2 billion from a low Ksh.308 billion in April.

Additional the number of mobile-money agents expanded to 263,200 from 242,275.

According to data from the Communications Authority (CA) covering the period between April and June, all mobile-money transfer values including person to person, and customer to business grew but for citizen to government on the back of the fees waiver.

Penny pinching habits

“The values transacted during the period increased significantly from the previous quarter following the Governments directive on the use of cashless payment systems to curb the spread of COVID-19,” the CA stated in a report.

As the waiver on fees ends, Genghis Capital Equities Analyst Gerald Muriuki admits we will not see the same shear volume and value in the transaction when the accompanying costs return even as he argues for a future case of cashless transactions.

“In the short-term, we may not see the volumes we have been seeing thus year, but in the longer term, there exists a case for more cashless transactions,” he said.

“The future will feature a more cashless environment as seen in the emergence of new digital currencies.”

Kenyans have continued to demonstrate penny pinching habits as they seek to avoid costs associated with sending money via digital channels.

For instance, Kenyans took advantage the free band to split person to person transactions of greater value after the CBK declined to cap the maximum number of transactions below Ksh.1000.

To send Ksh.60,000 for free via mobile, Kenyans would for instance split this single transaction into 60 parts sending out Ksh.1000 at a time.

According to analysis by Genghis Capital, ‘small transactions’ were on the rise with transactions below Ksh.1000 representing over 85% of total mobile money transactions after the announcement of emergency measures in March.

Cost factor

To keep Kenyans engaged on mobile-money transfers, Abojani Capital founder Robert Ochieng calls for cost incentives.

“Lower fees will encourage Kenyans to continue using mobile money. Charges and commissions are usually considered a major factor towards adoption,” he said

The CBK appears ready to lead the way in easing cost as a burden to cashless transactions.

In a statement issued on Thursday, the reserve bank hinted at controlling the pricing of mobile money transactions by asking mobile-money providers to submit pricing structures reflective of principles including transparency fairness and affordability.

“These principles aim to support the development of an efficient, safe and stable payments and mobile money ecosystem where the customer and public interests are adequately protected,” the CBK said.

Besides costs, CBK has made other interventions in support of cashless transactions including retaining extended transaction limits on mobile wallets and retaining the waiver of fees on bank to mobile wallet transfers.

On its part, Safaricom whose mobile-money platform commands a 98.9 per cent control of the industry has previously hinted at a review of costs with the aim of democratizing the use of its services.

Nevertheless, Ochieng states Kenya is still at the infancy of mobile-money adoption as mirrored in the many cash in and cash out transactions through agents with cash remaining supreme.

To reach a full transformation, he argues money transacted in the mobile platforms must be greatly retained within the ecosystem.

According to the CA, the total value of deposits in mobile money transfer services stood at Ksh.643 billion as of June this year.

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