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Firms jostle for space in Kenya’s expanding cashless platforms

Monday January 5 2015

From left, Matatu Owners Association chairman Simon Kimutai, Nairobi senator Mike Mbuvi Sonko and Tigania East MP Mpuri Aburi during the launch of the cashless payment system on Tuesday. PHOTO / SALATON NJAU

From left: Matatu Owners Association chairman Simon Kimutai, Nairobi senator Mike Mbuvi Sonko and Tigania East MP Mpuri Aburi during the launch of the cashless payment system on June 24, 2014. In February 2012, global payments giant MasterCard opened its regional headquarters in Nairobi. PHOTO / SALATON NJAU 

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In February 2012, global payments giant MasterCard opened its regional headquarters in Nairobi.

The development made the Kenyan capital the fifth city in Africa where the company had opened an office.

The electronic’s payments company is now setting up a Sh10 billion innovation lab in Nairobi which is expected to be fully operational by the end of the first quarter of 2015.

In preparation of the launch, the firm is already in the job market scouting for people who will run the centre.

MasterCard vice-president and business head for East Africa James Wainaina says the lab’s location in Kenya is both strategic for the firm as it plans to expand into the rest of Africa, and the country which is fast transforming into a cash-lite economy.

Bill & Melinda Gates Foundation will fund the first phase of the lab.


“Kenya has already demonstrated a strong feel for the cashless agenda and Nairobi is equally a strong financial hub hence the strategic choice for this tech lab,” Mr Wainaina told Smart Company.

“The country also has a fairly strong talent base with good inclination towards technology. The approach will, however, be more outreach just like the MasterCard regional headquarters serves over 10 countries in the region.’’

The lab will concentrate on initiatives that promote financial inclusion, working in collaboration with local tech start-ups, financial and academic institutions as well as the government.

The lab’s products and services are expected to be tested in Kenya, Uganda, and Tanzania, then scaled up, commercialised and rolled out across Africa and beyond.

The products target to impact 100 million people.

MasterCard’s huge investment is in sync with the growing interests in Kenya by global technology companies triggered by the country’s strategic position and increased efforts to digitise delivery and payment of services.

Kenya’s strategic position makes it a top target for multinationals eyeing the East African market.

American tech giant IBM set up its first African technology laboratory in Nairobi, in November 2013, to research and develop computing technologies that can be applied in addressing challenges in public health, education, financial inclusion and agriculture.

MasterCard’s key competitor, Visa, has also been actively exploring fresh opportunities in Kenya and the region at large.

The increased interest in the local financial markets and particularly the payments segment is not just from foreign companies.

Locally, mobile money providers and financial institutions such as banks have engaged in a fierce fight for a share of the cash transfer and payment services market.

Last year, three firms were licensed to start telecommunications services with all of them declaring mobile money as their first priority. On the other hand, old hands in the industry, such as Safaricom, have been investing in revamping their payment service products.

The decision by MasterCard to set up the lab in Kenya after IBM’s debut in 2013 must have been driven by the country’s efforts in rolling out a cashless system.

Treasury Cabinet secretary Henry Rotich in a gazette notice dated December 23, 2014 told the public of a government digital payment platform that “accepts all available electronic payment platforms in Kenya including mobile telephone money payments services”. The gazette notice was published on December 30.

This is the latest among the many steps that Kenya has taken in its bid to speed up adoption of cashless systems this year.

Kenya’s growing digital payment platforms are bound to benefit from the public sector’s lead role in not only enforcing the system through legislation but also in involving private players in implementation.

The county government of Nairobi for instance has started collecting parking fees digitally. Kiambu County is also planning a resident card that will see resident’s access services at lower rates.

Banks recently replaced all their customer’s magnetic stripe debit and credit cards with the more secure chip-and-pin.

Similarly, the government has started enforcing cashless bus fare payment system in a move that may see many traders in card and other cashless platforms angling to reap from the new trend.

Because the public transport industry is lucrative, financial institutions have embarked on providing cashless fare payment cards.

KCB’s Pepea Card which can also be used as a debit card as well as Co-operative Bank’s M-Nauli and Safaricom’s My1963 bus fare cards are already being used in the market.

Equity Bank is reportedly upgrading its Beba card to match competition.

Kenyan technology experts contend that the establishment of the MasterCard lab will go a long way in promoting Kenya’s globally acclaimed position in online payment technology and cashless industry.

Mr Chris Gathigu, the CEO and founder of Tangazoletu Ltd, a Kenyan ICT firm that automates business processes and provides mobile financial services, says the coming of MasterCard lab will present an opportunity for Kenya to popularise its cashless adoption worldwide.

“It is going to be great opportunity for us. MasterCard is a global firm and seeking partnerships with local tech firms means we stand to gain a lot from their global experience as well as scale-up our innovation that is already internationally acclaimed in money transfer service,” Mr Gathigu said.

“As a country which has already demonstrated affinity with cashless payments, the future is definitely bright.’’

Mr Gathigu said 2015 is expected to witness more development towards integration between card and mobile money.

Despite the fact that a big volume of transactions in the country is still carried out in cash, experts believe that relevance and convenience will see Kenyans embrace the new platforms.

Mr Wainaina says that adoption of cashless technology “will naturally expand owing to the uniqueness of transactions in Kenya”.

“Many other applications have been adopted without conscious effort. In Kenya, a government drive, co-operation from the private sector and now partnership from MasterCard through the lab will accelerate adoption,” Mr Wainaina told Smart Company.

“The market average transactional value is Sh80, presenting a lot of challenges in terms of costs and inconveniences that require innovative homegrown solution to trigger a natural uptake.’’


State puts in place laws to enable public pay services online

The government has finally put in place the legal platform required to enable citizens start paying for public services online.

The National Treasury Cabinet secretary Henry Rotich published guidelines for the roll-out of digital payments programme for government services in a special gazette notice on December 30.

This paves the way for the implementation of the project that has been in the pipeline for more than a year.

Migration to an online payment platform is expected to enhance accountability and eliminate rampant corruption that is blamed for the loss of billions of shillings in revenue.

“The government has developed the digital payments platform through which citizens and all persons will be able to pay for government services. This digital payments platform is integrated with all available electronic payment platforms in Kenya, including mobile telephone money payment services,” read the notice.

Stop all cash payments

The development now makes it possible for the government to make it mandatory that all payments for its services be made digitally.

The project was initiated by President Kenyatta in November 2013.

“It is my intention that by April 1, we will stop all cash payments for government services and all of them will be made on a digital platform,’’ Mr Kenyatta said as he opened Machakos City project.

Its implementation was, however, delayed with the Treasury citing lack of a legal framework for its implementation.

The government reckons that reliance on electronic payment systems will eliminate revenue leakages and stem corruption among civil servants.

Currently, the is interlinked with M-Pesa, MasterCard, Visa, Kenswitch, Airtel Money, yuCash, Orange Money and JamboPay.

The project is part of a bigger plan by the government to transform Kenya into a cash-lite economy. Plans are underway to have passengers pay for bus fares electronically just like the way motorists in Nairobi pay for parking fees to the county government.

It is estimated that a big portion of government revenue is lost to corruption and failure by officials to accurately report cash collected in government service centres.

Information and Communication Technology Cabinet secretary Fred Matiang’i (above) said the strategy would bring transparency in revenue collection.

“The reason why this is being done is because it will help seal leakages of government revenue. It will ensure that all revenue that the government collects will end up in its destination — the Kenya Revenue Authority. It will also increase transparency and enhance services,” Mr Matiang’i said in an earlier interview with the Smart Company.

Spark competition wave

The plan is likely to spark a new wave of competition as payment services players such as banks and money service providers battle it out for a share of the pie.

Already, payment services and the cash transfer market is undergoing a critical developmental stage that has seen three firms, among them Equity Bank, licensed to enter the mobile money market.

A huge corporate battle has ensued following the licensing of Equity Bank, through its subsidiary Finserve, as Safaricom fights to retain its huge market share.