Why cashless drive can only gain speed

The December 1 deadline for public transport to use cashless methods in payment of fare has come and gone. However, a high number of matatu crew still use cash.

Apparently, they are unmoved by the stipulated Sh100,000 fine against those who fail to change to the new system.

Opinion is still divided among the public on the new method of payment with some embracing it while others seem reluctant to adopt it.

One thing however is for sure; the world’s financial markets are going cashless and Kenya has no choice but to follow suit. Industry experts say digital payments will bring a lot of benefits.

And because Kenya leads in the use of mobile money services in the region, going cashless in all aspects of the economy is inevitable.

Mr Chris Gathigu, the CEO and founder of Tangazoletu Ltd, a firm that automates business processes and provides mobile financial products, says that the journey to digital payments has just started.

“As much as cash has been the universal language, Kenyans need to be prepared to adopt a cashless system that is very beneficial to both the consumers, corporate and the government who are basically the key drivers of the economy. We are very innovative and as long as we take gradual steps, the move to cashless is very possible,’’ Mr Gathigu said.

Cash is expensive

A research conducted by Financial Sector Deepening (FSD) Kenya in mid-2012 showed that electronic payment costs between 50 and 65 per cent less than paper payments.

Estimates from US, Australia and EU project between one and two per cent cut in costs by shifting to electronic payments. This would translate to over Sh90 billion annually in savings for Kenya.

The figure is arrived at using the Kenya National Bureau of Statistics’ revised GDP figures for 2013 from Sh3.8 trillion ($42.6 billion) to Sh4.76 trillion ($53.3 billion) in September, this year.

The figures above underline the fact that cash payments are expensive. Even withdrawing cash in banks has a cost involved.

The FSD survey showed that on average, people spend between 20 and 80 minutes to carry out banking services involving cash in Kenya’s urban areas. More time is spent by rural folks travelling to transact in banks.

Proponents of cashless economy say carrying cash is dangerous as you are vulnerable to theft. People handling cash are left counting more losses than those with cards or mobile money in case of a robbery.

Mr Cornelius Mutiiria, who is in charge of cash in transit for a local bank, says that transporting large sums of money is always a tense affair, despite the armed escort.

It is also costly because the transporters are paid in addition to the insurance cover to secure the money against risks such as robberies.

A cashless system is immune to fire and conmen, he added. “Your card, for example, can be burnt but you still have the money safely kept somewhere,” Mutiiria said.

“Besides, con artists who peddle fake currencies, will not be any threat to you since there cannot be any fake mobile money.”

The cashless platforms, he said, is a boon to the taxman as they provide an easier way to curb tax evasion since records of financial exchanges can easily be traced compared to a cash system.

FSD also found that while most Kenyans easily engage in impulse buying when they have cash, electronic payments instills some level of discipline because “the act of having to withdraw forces you to think about what you need and have at least a rough budget in mind.”

Consumers can also track their expenditure and control their budgets better using cashless systems as opposed to dealing with cash.

More than 26 million Kenyans have adopted mobile money in purchasing, transfer and banking, according to Central Bank estimates as at August, this year.

Communication Authority of Kenya puts the number of mobile subscribers at 31.8 million, 80 per cent of whom use mobile money services.

FinAccess survey conducted last year indicated that financial inclusion in Kenya has shot up to approximately 75 per cent thanks to mobile banking.

Equity Bank is rolling out Mobile Virtual Network Operator platform. Under the system, the bank’s customers will use their handsets to transfer cash and buy goods using the money in their accounts.

Globally, the financial market has shifted tremendously in the past three decades with use of cashless platforms rapidly increasing.

Use of cheques

In 2000, 59.5 per cent of retail payments in the US were made via cheque. That number plummeted to just 4.3 per cent in 2010.

Similarly, the UK payments council reported a reduction of 35 million cheques daily between 2003 and 2012. Moreover, it is estimated that cheques will make up less than 0.8 per cent of personal payments in the UK by 2018.

Mr Morris Mwaura, who has been a banker for eight years, has seen a declining number of cheque book applicants. People have turned to easier ways of transacting such as electronic payments, he said.

“One agreeable fact is that mobile payments will accelerate the already declining use of hard currency. A lot of people no longer prefer cheques or cash, especially with the coming of mobile money,” he added.