Mobile transactions hit Sh4trn on rising demand

Kenyans moved Sh4.35 trillion through their mobile phones last year, fresh data by the Central Bank of Kenya (CBK) shows, pointing to the growing significance of the digital marketplace.

The total transactions rose by Sh361.39 billion compared to the amount that was transacted in 2018.

This means that an average Sh11.91 billion was transacted on mobile phones daily between January-December 2019 – some Sh990 million higher than the Sh10.92 billion daily average in 2018. The overall mobile payments in 2018 amounted to Sh3.98 trillion.

Stephen Nduati, former head of the national payments system at the CBK, said mobile money platforms have transitioned from money transfer channels to financial services platforms.

Unlike during the formative years when the mobile money platforms were largely used for person-to-person (P2P) cash transfers, they are now increasingly being used to initiate and cut business deals such as purchase of goods and services as well as processing of instant short-term loans.

“When I was still in regulation, we were working very hard to facilitate mobile money transfers. But now, we have shifted to another level called ‘platformisation’ where mobile money is actually a powerful platform on which a lot of financial transactions is taking place,” Mr Nduati, who now works as an independent consultant on mobile money regulation, said in a recent interview.

“Financial services such as credit are now offered on this platform which is very flexible, thanks to the facilitative regulations. In fact, the rest of the world copy from us, but many have not been able to craft as good regulations as we did.”

Major sectors of the economy such as financial services, retail and wholesale trade, agriculture and health have integrated mobile payment platforms such as M-Pesa into their payment systems, largely because of convenience and speed.

The CBK data indicates the value of mobile money transactions in 2019 was equivalent to 46.15 percent of the estimated size of the Kenyan economy of Sh9.4 trillion – as measured by gross domestic product (GDP) – assuming an expansion of 5.8 percent last year.

The deals via mobile phones further represent 48.82 percent of Kenya’s GDP of Sh8.9 trillion in 2018 (as captured in the Economic Survey 2019) and 56.06 percent of Sh7.75 trillion GDP in 2017.

The Treasury had in 2016 said that mobile money transactions were deeply entrenched in the daily lives of Kenyans, warning that a collapse of Safaricom’s M-Pesa service, which controlled more than 99 percent of the value of transactions, would cause widespread disruption in the economy.

“If this system was to be compromised, the impact would be substantial considering the linkages and the corporate tax revenue for government,” the Treasury had warned in Budget Policy Statement (BPS).

“Technological innovation via the mobile money transfer services and its pivotal role in the economy should, therefore, be given due consideration as a plausible fiscal risk.”

Mobile money accounts crossed the 58.36 million mark at the end of 2019, meaning that an additional 10.67 million accounts were opened during the January-December 2019 period.

Mobile cash transfers in December hit a monthly record Sh382.93 billion, a growth of Sh23.67 billion over a month earlier and Sh15.16 billion compared with December 2018.

In a quarterly report for the period ending last September, the Communications Authority of Kenya (CA) reported that the value of mobile commerce transactions (which includes both transfers and withdrawals) hit nearly Sh1.63 trillion – nearly double the Sh665.04 billion in P2P deals.

E-commerce deals are in part driven by growth in online shopping as well as increased uptake of instant low-value unsecured mobile loans.

The growing deals in the digital market place has caught the eye of the taxman which has set sights on businesses using the internet to market and sell products subject to regulations to be issued by Treasury Secretary Ukur Yatani.

The Kenya Revenue Authority (KRA) has said that it will work with the CA to obtain data on mobile and web-based transactions, which are usually completed through the mobile money platforms.

“People don’t pay a lot of attention to the capacity and investment done by the mobile companies, especially Safaricom,” Mr Nduati said. “When they started, they couldn’t do as many transactions per second. Today, they have invested heavily to have a platform that’s running 24/7. This is helping fight cash.”

Mobile and web-based businesses do not have physical addresses or legal structures in the jurisdictions they operate, making it easy to escape the taxman’s noose as well as county governments that issue business permits. The KRA has singled out taxation of the emerging digital economy, a headache for global revenue agencies, as a major risk to meeting its tax goal, which has been set at Sh1.7 trillion for the current financial year ending June 30.