In the coming years, many will be watching to see whether mobile network operators will manage to retain the 2.8 million new mobile money subscribers with affordable fees.
This article is part of the series — Africa in 2021.
Kenya has among Africa’s highest levels of mobile penetration. It is lauded for adopting technology in both private and public uses, from mobile money to e-government services. It was, therefore, not unexpected that when the COVID-19 pandemic struck, the country turned to digital technologies to help people ease into new forms of working and learning. A raft of policy and legal measures for contactless transactions were put in place. These included directives for cost-free mobile money person-to-person transactions for transactions below Ksh. 1,000, and cost-free bank-to-mobile wallet transfers. Amendments to various laws also legitimised electronic signatures and the Judiciary developed rules on e-service, e-filing, e-payment and e-proceedings. Many of these measures were introduced shortly after Kenya confirmed its first case of the novel coronavirus, when a lockdown was imminent. They were, therefore, aimed at not only supporting a digital society with cashless transactions, but also cushioning low-income earners whose livelihoods were affected by reduced movement.
The effect of the lockdown and curfews on the economy was evident from reduced cashflows. Nevertheless, the Central Bank of Kenya (CBK) reported that mobile money transactions increased by 87 percent between February to October 2020. The COVID-19 emergency measures on pricing of mobile money transactions demonstrate the dynamics of digitalised payments, from affordability, inclusion to regulation perspectives.
Three months into the measures, the largest mobile money operator (MNO), Safaricom, protested extension of the measures, estimating that it had incurred Ksh. 19 billion in lost revenue. Statistics from the communications regulator indicate that in the period, there had been a rise in volume and value of person-to-person mobile money transactions of over 24 percent and 7.2 percent respectively. CBK noted that were were about 2.8 million new mobile money subscribers, and transactions of below Ksh. 1,000 rose by 114 percent.
This data paints a very different picture from that shown by high mobile penetration rates. It indicates that there were many potential mobile money subscribers who did not use the services before the emergency measures, probably due to the cost of transaction fees, which vary from Ksh. 10 to Ksh. 300 depending on the transaction amount. That transactions increased by over a hundred points to people previously locked out of the convenience of mobile money transactions by the cost of transaction fees is a reminder that digitalisation cannot be fully left to markets. Policymakers must intervene appropriately as they did with the emergency measures.
Sadly, the cost-free mobile money transaction directive will expire at the end of the year. MNOs will be at liberty to revert to previous person-to-person transaction fees, or — which is most people’s hope — scrap or drastically reduce transaction fees.
Curiously, bank to mobile wallet transfers of all values will remain cost-free. While this is appreciated, it brings to the fore questions of financial inclusion. According to a 2019 survey by FinAccess, only 41 percent of Kenyan adults have bank accounts. However, over 80 percent of this population has access to financial services, owing to availability of mobile money services. Scrapping of transaction fees for bank-to-mobile wallet transactions benefits a segment of the population that is already included in formal financial services. It would require one to open a bank account in order to enjoy cost-free mobile money transfers. The FinAccess survey shows that many of the adults without bank accounts are lower income earners in the informal sector who hardly have money to spare for savings or to maintain bank accounts. They have, therefore, taken to mobile money, which has evolved from simple transfers of money to micro digital loans. The CBK directive leaves the unbanked who depend on mobile money to market dynamics.
In the coming years, many will be watching to see whether mobile network operators will manage to retain the 2.8 million new mobile money subscribers with affordable fees. CBK has introduced a principles-based model, where customer-centricity, transparency, fairness and competition will guide fees charged to customers. This is a departure from the emergency measures that were more prescriptive, as well as the many attempts previously made at increasing competition and customer choice in the mobile telephony economy in Kenya.
Beyond retaining the new subscribers, there is interest — from a digital rights perspective — on how data collected from all these transactions is handled. Kenya is in the process of implementing the 2019 Data Protection Act, which among other things, requires protection and promotion of privacy in personal data such as financial transactions. And it is not only Kenyans who will be following the mobile money economy. Countries such as Ethiopia, who are in the process of liberalising their telecommunications market, will be watching keenly to learn good practices as well as pitfalls to avoid when migrating to digital payments.
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Grace Mutungu researches ICT policy in Kenya and Africa generally. Her current work is around digital rights digital ID and financial inclusion. She is a ...Read More +