Category Archives: credit cards

9 Findings on Cashless Payments in Kenya

The future is said to be digital or cashless. So can one live and transact without using paper currency? Nairobi is as good a place as any to try in 2016. And while it’s largely doable, but not quite entirely possible, to get around using a mix of cards (credit/debit) and mobile money (i.e. M-Pesa), it also brings up a lot of interesting findings.

 What happens when you try not to pay In cash? Blancos-notes

  1. Cash is still king: Cash gives you the  flexibility to buy for anything, any time from any vendors. It is the fastest way to pay, and there are still places that only take cash e.g. landlords, matatus, and a Chinese restaurant – no card or no M-Pesa accepted.
  2. Cards are easier to pay with than M-Pesa: By having chip & PIN, there’s no need to even show an ID card. And it takes 4 presses to pay for a transaction while it takes about 25 presses to do an M-Pesa transaction, and even more if you have to draw cash from your phone from another bank account. M-Pesa is not convenient if you’re in a rush, and with so many menus and buttons to press, it’s also easier to make mistakes and send money to the wrong business account. You have to be active and pay attention and also confirm with a staff member, showing them your phone screen, before you commit. Even then, they look at the message generated on your phone and trust that it’s genuine, as they often don’t have access to the business phone where the message confirmation is sent.
  3. M-Pesa needs a reboot: It needs NFC up to a limit – say for purchases of less than Kshs 1,000 ($10) – so you just tap and go. Lipa Na M-Pesa signs are all over, but it some shop staff are not aware of if  the payment is to be processed through ‘Paybill’ or ‘Buy Goods’ (two dedicated business payment options inside a phone M-Pesa menu), and some even give the owners M-Pesa number, which makes for a costlier transaction for the business.
  4. Cards Usage is limited: They are generally not accepted for purchases of less than Kshs 1,000 ($10). At some petrol stations, they are not accepted at night, as a fraud prevention precaution.
  5. Paying by card or phone builds business relationships: I got to pay for a week’s worth of newspapers, by M-Pesa. The newspaper vendor gave me free newspapers and I sent him M-Pesa midweek. So in the first part of the week, he was giving me credit, and in the second part, he owed me newspapers. I now know his full name after buying a newspaper from him for 3 years, and only knowing one of his names. I also didn’t know that Java restaurants take M-Pesa, but I’ve been paying for coffee by phone and got pinged by SMS to participate in their customer service surveys – with a possible invitation to coffee tasting event sometime in the future.
  6. Paying by card or phone sucks liquidity from an economy:  The transport is very challenging, and I think the celebrated launch of Equity Bank and Google’s Beba Pay failed because of other issues. Digital payments meant that owners jumped to the first in the queue in getting cash, from where they currently are – last! The fares paid by passengers during the day are shared between drivers, conductors, route managers, and policemen, and going digital takes away this easy daily cash; DigItal payments mean formality and more tax collection for the government, but these will be an extra burden for employees.
  7. You become less generous when you go cashless: I give tips several times a day, and that is just not possible without cash. When you pay cash, you can leave a portion of your change as a tip that you hand to the waiter at Java, This is not just for restaurant waiters, but also for people who check your tyre pressure at the petrol station and watchmen who guard your car at night when you park at a public places. Also, Kenya doesn’t have a tipping culture or mechanism like the USA does, and when you can direct a portion of your card payment to a tip for the waiter.
  8. With cards you go into debt, but with M-Pesa, you run out of ‘cash’ quicker: Which is better?  Note, if you run out of M-Pesa. You have a few options. One is to link your bank account to M-Pesa so you can load up your phone. Another option is to take a loan from M-Shwari. Approval takes a few minutes and you can borrow almost $150 (Kshs 15,000) that you have to pay back in 30 days with a 7.5% fee. Besides the costs, you can only take one loan at a time before you have to pay it back. So your temptation is to take more than you need, just in case you have another emergency and won’t be able to draw that
  9. There’s no real difference between card and mobile: In fact, they are merging. Uber has shown this – the phone navigates, and is preloaded with the card, which pays.

These findings are from about a week and a half I spent, going cashless, and trying not to use any cash. This was for every day buys like meals, parking, groceries, utilities, and newspapers.

This was inspired by a conversation with Lucy Mbabazi who’s a card payment proponent and also by a previous experiment done at KopoKopo (who had an intern try to go 60 days using M-Pesa, in lieu of cash – but I can’t find a link to their post).

Interswitch in Kenya

Interswitch is a Nigeria-based, transaction switching and electronic payments processing company, with operations in several African countries. The company, founded in 2002, provides payment solutions for individuals and organizations, mainly around financial services to several private sector companies, as well as in the public sector (government revenue, health care etc.)

Interswitch was majority acquired by Helios Investment Partners for $96 million in 2011. Helios are best known in Kenya for their large investments in Equity Bank, Wananchi Online, and soon, at  Telkom Kenya, where they are in the process of buying out France’s Orange Telecom.

Interswitch itself entered Kenya by buying 85% of Paynet Holdings in 2014, which was best known for it’s Pesa Point network of ATM’s, which was launched in 2005,  and which grew to serve customers of over 100 institutions including several of the large and mid-size banks. At the time of the  Interswitch purchase in 2014, Paynet Services had 2013 revenue of Kshs. 320 million (~$3.7 million) and powered 1,200 ATM’s and 1,300 bank agent locations in Kenya.

Interswitch also owns Verve International which is the largest card brand in Nigeria with almost 30 million customers. Interswitch launched the Verve card brand in Kenya last month, in a partnership with KCB, East Africa’s largest bank

Gold Cards are 3rd Class

You can stop bragging or flashing your gold credit card now as you settle the bill at your favourite restaurant. Looking at this card comparison chart from Visa, it is now clear that having a gold card is getting lower in the hierarchy of cards to aim for after Infinite, Platinum and then Gold, that’s just above a Classic card . This was made clear when NIC launched platinum cards some months ago and the extensive benefits of the new cardVisa card range were listed..including some that were previously attached to gold.

Visa chart The big change is airport lounge access which Priority Pass attach to Platinum cards, but not to gold cards – and it seems gold cards no longer entitle owners to use airport lounges e.g. at Nairobi or Kigali, but ‏reader, @smandavia says gold is still good at Mombasa airport.

Still it could also be following a global trend where the best that airports have to offer are reserved for passengers flying on first or business class, and those with enough accumulated miles  – regardless of what credit card they have. Curiously, Airtel  Africa premier customers also get access to airport lounges with Priority Pass.


New Credit Cards from NIC and Equity banks

This week, NIC Bank launched a platinum credit card and Equity Bank formally announced their expanded impressive card portfolio that now includes American Express

The NIC Bank Visa Platinum credit will be offered to a select few clients like professionals, senior government employees, business leaders, and entrepreneurs. The card comes with a variety of privileges in terms of shopping discounts, priority pass access to 600 VIP airport lounges in 100 countries (with complimentary snacks, free internet at many, and cardholders can bring in companions), a portfolio relationship manager, and purchase protection for 90 days. 

For frequent travelers around the world, it also provides useful facilitation in emergencies like payment of hospital deposits of up to $2500 and arranges for emergency evacuation, legal advice, transport of companions or children.The annual fee is Kshs 6,000 (~$70) and there is no joining fee. NIC will also have a rights issue and a bond issue that shareholders will kick-off next week at an EGM.

Equity Bank is signing up merchants to accept American Express cards – for which they are the exclusive card issuer in Kenya. They have already signed on Nakumatt,  ArtCaffé, Heritage Hotels, Best Western, Laico Regency, Leopard Beach, Boma and some other hotels.

Speaking when he confirmed the development, Equity Bank Managing Director, James Mwangi, said “the bank is now a partner for American Express, Visa, MasterCard, PayPal, Google, China Union Pay, SWIFT, JCB, VFX (Equity Direct) and Diners Club.” As per Central Bank stats, Kenya had about 162,000 locally issued credit cards as at February 2014, compared to 114,000, three years ago.

E-Government Moment: Part II

Stuff happening on the e-government sidelines
  • July 1 is the deadline for Matatu’s and other Public Service Vehicles (PSV’s) to switch to cashless payments of accepting fares, in lieu of hard currency. PSV’s are meant to have signed on to services like Google & Equity’s – BebaPay or be in breach of the law.  It’s not expected to be smooth sailing considering the slow uptake of cashless systems among smaller matatus within  Nairobi, and it’s possible that after taxes, the minimum fare will be more than Kshs 30.
  • June 30, (today) is also the deadline for Kenyans to file their tax returns. This had been a largely academic exercise of submitting paper forms that the revenue authority (KRA) was unlikely to ever go through, and had even been discarded. But in rejecting a bill, parliament re-opened this tiresome exercise. This year, KRA has advertised its website, as the only way for Kenyans to file their taxes – but the site and service still has many challenges, including inaccessibility. 

  • While the schools laptop project seems to have stalled at the procurement stage, some $200 million has been allocated in the 2014/15 budget to procure some laptops. More visible in terms of making the government digital, has been the procurement by by county governments and parliament of iPad’s and other devices for leaders to use.
  • In the banking sector, June was a turning point for the migration to debit and credit cards to Chip-and-PIN enabled cards. While the benefits to consumers appear negligible (less fraud identity than swipe cards) and there is a cost of about $1.80 to 3.20, there has now been a liability shift, and going forward, costs associated with fraud involving non-EMV compliant cards will be borne by the issuing bank (currently they are borne by the acquirer/merchant).
  • In terms of digital television, there’s one year left for the analogue to digital migration in Africa. However, most countries are unlikely to make this deadline. Read more.
  • The Kenya Government has automated registration of companies by launching a one-day registration of companies system to improve efficiency at the state law office.