THE EVOLUTION OF MOBILE PAYMENTS IN KENYA BY MARGARET MWANGI

Kenya has been recognized as a country that has made tremendous strides in Financial inclusion. And as a leading African Country in Financial innovation, using technology following the invention of Mpesa. Kenyans are increasingly adopting to mobile money services to pay for goods and services.

In the fight for the customer wallet, financial institutions in Kenya have realised customers no longer need to walk to the banking halls to deposit, withdraw or transfer cash. They can do banking with the click of their mobile phones.

The mobile phone has become one of the essentials of life, you cannot go anywhere without your mobile phone. In fact, you literally feel lost without your Phone. The just released Kenya census conducted August 2019 revealed 20,694,315 out of the total population of 47,564,296 Kenyans owned a mobile phone, 43.5 % of the population.

The report also highlights a few interesting facts. 22.6% of individuals aged 3 years and above used the Internet and 10.4% used a computer. Regarding e-commerce, 4.3% of Kenya’s population aged above 15 years and above have searched and bought goods and services online.

This is besides the fact that some years back Kenya was playing catch up in comparison to our neighbouring countries. Until a need came to fund and manage microloans in the rural areas where the average Kenyan lives several kilometers from a Bank. 

Milestones in Mobile Payments in Kenya
Year of Milestone	Product Name	Involved Entity
2007	Mpesa	Safaricom (MNO)
2010	MKesho	Safaricom & Equity Bank
2012	MShwari	Safaricom & Commercial Bank of Africa
2013	Lipa na Mpesa	Safaricom
2015	KCB-Mpesa	Safaricom & Kenya Commercial Bank of Kenya
2015	IPRS-Integrated Population Registration System	Government of Kenya
2015	Equitel	Airtel & Equity Bank
2017	Pesalink	Kenya Bankers Association
2017	MAkiba	Government of Kenya
2017	Digital Credit	Financial Institutions and FinTech’s
2019	Stawi	Four Banks- NCBA, DTB, KCB & Co-op Bank

Mpesa (A Mobile Wallet embedded in the *Safaricom SIM Card) in the year 2007, came in as a medium of a Microloan disbursement and repayment. No sooner were Kenyans using it not only to pay loans but to send each other Money. Identifying Opportunity Safaricom created a network of Physical agents that could pay out and deposit to the Mpesa Wallet, transforming the local shopkeeper to the local Banker. Mpesa gives ease of transactions at low cost especially in the rural areas due to cost of travel to the bank. Cost of the financing process was also fundamental in reducing cost on the interest charged.

Kenyan banks initially objected the Mpesa solution arguing Safaricom was operating as a bank with no license, talk of resistance to change. However, after the regulator’s audit on Mpesa as a retail money transfer service was a success it only reassured the public.  What followed was more of operation recovery of “stolen lunch by the unsuspected neighbour,” the largest retail bank partnered with Mpesa to create Mkesho. Mkesho launched in the year 2010, was a savings account imbedded in the Mpesa Menus that enabled customers to transfer funds between the mobile wallet and bank. The product was a failure due to undefined roles within the partnership, however Mpesa partnered with a smaller bank with lessons learnt it was a success with Mshwari.

Mshawri since its launch in November 2012 has over 31 million customers automatically edging the bank to a tier one bank in Kenya. Another larger lender joined in with a similar product in 2015 bringing in more of the unbanked into the banking sector.

In the year 2015 the government’s department of immigration introduced a national registration bureau known as IPRS- Integrated Population Registration System, a central database that provides information of the countries citizens. Giving banks a life-line, banks due to KYC regulatory requirements were now able to authenticate a mobile user with provided information in real time. Easing the account opening process of individual accounts, currently bank customers can open accounts within minutes through their mobile phones.

In the same year Airtel (An MNO) partnered with a local retail lender to launch a mobile virtual network operator (MVNO) known as Equitel. The partnership was strategically implemented through the banks fintech subsidiary. The MVNO provides the normal mobile telephony services to its subscribers. In addition, the SIM was launches not only as the normal SIM card but also as the tiny SIM which can be placed as on overlay of another normal SIM card in a mobile device.  Obviously, this was challenged by the other MNOs since it meant the subscribers not only retained the existing SIM line but part of the go-to- market strategy was acquiring a line with similar digits with only change in prefix.

More recently in the year 2017, Kenyan banks have come together to roll out Pesalink, a real-time payments system that enables small-value transfers between institutions. The payment switch is meant to enable customers from participating banks to exchange payments using the mobile phone. The switch would initially start with person to person transfers, later phases may incorporate other use cases, including bill pay and merchant payments.

Like mobile money, the transactions are fast and intended to be low cost. However, the reach of the banking industry remains small compared to that of the MNO-led mobile money. Banks in Kenya have discovered new ways to compete and collaborate as they adapt to an increasingly digital and mobile services market.

As stated by the CBK Governor Patrick Njoroge “Innovation will likely come from the intersection of ICT and financial services as it has in the past, but we need to take this beyond simple transfers.

With technological factors such as an increase in penetration of smart phones and availability of 4G (fourth Generation of Mobile communication) broadband in most towns Kenya has increased the mobile internet penetration rate. Social media penetration has also contributed to high smartphone, today virtually anything can be done from the comfort of peoples home especially with the mobile phone.

Quarter 3 2019 Data
Indicators		% Variance Q3-Q2
Total Mobile Subscriptions (Million)	53.2	1.9
Active Registered Mobile Money Transfers subscriptions (Million)	31.28	-4.1
Number of transactions -Sending & Withdrawal (Million)	661.63	-18.4
Value of Transaction -Sending & Withdrawal (USD Billion)	17.6	-19.3
Number of Registered Mobile Money Agents	235,165	1.7
Number of Mobile commerce transactions (Millions)	425.35	-28.1
Value of mobile commerce transactions (USD Billion)	16.3	-16.4
Value of Person to Person transfer (USD Billion)	6.65	-13.7
*According to Communications Authority of Kenya (CAK)

Currently due to technology advancement in Kenya innovation has grown beyond Simple Transfers to currently a retail infrastructure bond issued by the Government through savings done in a Mobile Wallet known as M-akiba.

Other trends in the Financial landscape are Mobile commerce and digital credit. These services have been made possible by the ballooning financial technology (Fintech) industry. Mobile commerce is the revolution to payments of goods and services through the mobile phone. In the year 2013 through a product Lipa-na- Mpesa (Pay -By -Mpesa) mobile customers were now able to pay using the Mpesa Wallet to a Merchant for goods and services. This has grown tremendously with the increase of online purchase of goods and services.

Digital loan services appear to bridge the gap for Kenyans who do not have formal bank accounts, whose incomes are not stable enough to borrow from formal financial institutions. This trend continuous with traditional players such as bank encountering new entries, fintech’s increasing the supply of digital credit. In 2019, four banks collaborated to come up with Stawi a digital credit product targeted to SMEs, offering unsecured loans increasing the loan repayment period and amount limits.

Unfortunately, the low costs of delivering credit has not trickled down to the consumers. This has been attributed by the fact that fintech’s are not regulated and are therefore not subject to the interest rate capping that was introduced in the year 2016. The failure point has been borrowers seeking funds from several platforms at the same time, using one to pay another. Remedy would be to improve accuracy of the credit assessment process, and strong credit reporting systems.