mpesa
Lipa na mpesa

The Central Bank of Kenya (CBK) will launch a national payment system that will force Safaricom #ticker:SCOM to accept cash from rival firms such as Airtel on its Lipa na M-Pesa, enabling a seamless transfer of money through merchants.

The new system, to be introduced by 2024, will remove the hurdle where Airtel subscribers, for example, cannot pay for goods and services through Safaricom’s till and pay-bill numbers.

The move is aimed at curbing the dominance of Safaricom’s mobile money service and Lipa na M-Pesa, which handled payments worth Sh970.2 billion in the year to last month.

Airtel’s version of merchant payments services is dubbed Lipa na Airtel Money, but it is used much less compared to Safaricom’s, a market position that is in line with its stake in the mobile money transfer service.

The CBK said the increased use of mobile money at agents and merchants through platforms like Lipa na M-Pesa had been constrained by lack of interconnection among the telecommunications operators.

“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.

The value of mobile money transactions through agents as a share of gross domestic product (GDP) has increased from 23 percent in 2010 to 60 percent in 2021, according to the banking regulator.

There were over 2.2 billion transactions worth over Sh6.9 trillion in 2021.

The interoperability — the ability of different IT systems to communicate and exchange data — will offer Airtel a larger share of the mobile money payments made through merchants and deepen financial inclusion.

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Through interoperability, the CBK is seeking to replicate the linkage between Airtel Money and M-Pesa that was introduced four years ago.

Users can send money across mobile phone networks, meaning that cash can be sent from M-Pesa and it reflects in an Airtel Money wallet.

Safaricom has been uncomfortable with the push to open its mobile money outlets to rival firms, arguing it would expose its lucrative M-Pesa mobile money platform to stiff competition.

“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.

More than 30 million people in Kenya use M-Pesa, which besides allowing users to send cash and make payments by phone, save and borrow.

Safaricom had 258,000 mobile money agents at the end of September, leaving rivals to control the remaining 31,255 outlets.

This dominance plays out in the merchant payment segment.

Safaricom’s Lipa na M-Pesa merchants grew by 72.8 percent to 387,000 in the review period, highlighting the impact of increased preference for cashless transactions.

Safaricom’s till and pay-bill service has risen to take a 85.8 percent market share of non-cash payment for ordinary goods and services, underlining the entrenchment of the mobile money platform in everyday 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.

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“Limited interoperability in the mobile money merchant acceptance space limits payment options available to customers as well.”

Lipa na M-Pesa was launched in June 2013 and has aggressively recruited merchants across the country, including large and small businesses such as fuel stations, supermarkets, corner shops and eateries.

This has seen it overtake the card payments — run by banks and their global payments technology partners such as Visa and Mastercard — that have largely focused on serving formal retailers.

Merchants signed up for Lipa na M-Pesa are charged a fee of up to 0.5 percent of the value of the transaction and customers may also incur the same level of fees to use the service.

Banks on the other hand can charge merchants up to two percent to process card-settled transactions which are free to shoppers.

For merchants, use of cashless payments has the benefit of reducing revenue leakages besides eliminating the risks and costs of handling notes and coins. Cashless payments are expected to grow in the coming years, partly due to increased digitisation and the lowering of fees by payment service providers.

Kenya, however, still relies heavily on hard cash with which more than 90 percent of transactions are settled.

Lipa na M-Pesa is part of the expansion of the mobile money platform into an ecosystem offering payments, cash transfers, credit, insurance, savings and investment services.