The Central Bank of Kenya (CBK) plans to introduce a national payment system that will enable Safaricom’s Lipa na M-Pesa system to accept cash from rival firms like Airtel, allowing a smooth transfer of money in business setups.
Currently, with continuously expanding Airtel subscribers, Safaricom’s Lipa an M-Pesa system cannot accept payment for goods and services by Airtel subscribers, a hurdle the new system will remove.
The CBK plans to introduce the system by 2024.
The CBK said the increased use of mobile money through platforms like Lipa na M-Pesa at agents and merchants lacks interconnection among the telecommunications operators, something that looks awkward in this era.
“This trend is expected to continue increasing once initiatives such as interoperability are fully rolled out, allowing customers to seamlessly transact across the ecosystem irrespective of their provider,” the CBK said.
According to the banking regulator, the value of mobile money transactions through agents as a share of gross domestic product (GDP) has increased to 60 percent in 2021, from 23 percent in 2010.
In 2021, the mobile money transactions were worth over Sh6.9 trillion with over 2.2billion transactions in number.
The ability of different IT systems to communicate and exchange data is called interoperability.
Through interoperability, the CBK will replicate the linkage between M-Pesa and Airtel Money, which was introduced four years ago.
The system will see Airtel deepen in financial inclusion as it will be offered a larger share of the mobile money payments made through merchants.
Safaricom’s M-Pesa is a lucrative mobile money platform which the tech company has been uncomfortable with the campaign to interlink it to rival firms, on stiff competition fears.
“The emergence of a fully integrated ecosystem that is seamlessly interoperable is critical. A strong foundation has already been laid with the rollout of P2P [peer-to-peer] interoperability in 2018 and the industry engagement that culminated in the proposal for a single integrated solution with multiple functionalities (national switch),” the CBK said.
As of September 2021, Safaricom had 258,000 mobile money agents, leaving rivals with the remaining 31,255 outlets. For instance, more than 30 million Kenyans use M-Pesa, not just for sending cash and making payments, but also doing savings and borrowing.
Safaricom’s Lipa na M-Pesa holds 85.8 percent market share of non-cash payment for ordinary goods and services, displaying the depth of the mobile money platform in daily transactions.
“There is limited competition for merchant acceptance in mobile money space. This is also due to limited acceptance of competitor payment instruments,” the CBK said.
“Limited interoperability in the mobile money merchant acceptance space limits payment options available to customers as well.”
The system has overtaken the card payments system managed by banks and their global payments partners like Mastercard and Visa that have largely focused on serving formal customers.
After its launch in 2013, Lipa na M-Pesa has actively recruited both large and small merchants across the country, including supermarkets, fuel stations, corner shops, and hotels.
Other than eliminating risks and costs of handling notes and coins, the use of cashless payments has the advantage of reduced revenue leakages.
Due to increasingly growing digitization and reduced transaction fees by payment service providers, Cashless payments are expected to grow in the coming years.
However, many Kenyans still settle more than 90 percent of their transactions through hard cash. With continuous changes in the digital sector, the percentage will slightly reduce by 2024 when the new system will be in operation.