Cashless Payment Systems In Kenya and Their Curse of Failure (Part 1)

Just the other day, the government of Kenya launched the Huduma Card, a smart card that will allow Kenyans to pay for and access government services seamlessly. When this card was announced, it got me thinking, will it suffer the same predicament as other smart cards previously launched in Kenya? One might argue that cards such as the Safaricom-backed, My 1963 Card, Google and Equity’s BebaPay among others, were focused on the transport department.

Well, the concept is the same, pushing Kenyans from their traditional ways of using cash to pay for services to using cards, and that is where the problem lies. Yes, mpesa works, but cards are different. Cards involve adopting new technology, investing in new gadgets and learning new methods of operation.

Let us look at what made the transport-focused cards fail. For starters, the stakeholders were not involved. Matatu crew earn a living from the fare that travellers pay and the lack of proper regulation (that the smart cards would have introduced) means that the crew can increase the fare when they see fit (during rush hour and rainy days).

Further, most matatu crew are not permanently employed, they work in shifts, popularly known as (squads), so how would the card system help them earn from the “squads”? The new technology was an inconvenience to the stakeholders and not a benefit. So a rejection from the industry and the low-adoption by the public, meant failure for this new technology.

Question is, are cards really that bad? They have worked in the west, they are even moving to mobile payments such as Android Pay and Apple Pay, where you input your card details into your phone and then use your phone to checkout at the terminal – through NFC, instead of using your real debit/credit card. This method has proven to be safer and easier for consumers. However, back home (in Kenya), we’re still struggling to adapt cards.

The assumption is that it is more expensive to pay for goods and services using your debit/credit cards.

Yes, more and more people are using their debit/credit cards to pay for shopping and services but the adoption is not wide. It is very common for someone to walk into an ATM, withdraw money and then walk into a supermarket to buy goods, yet the same supermarket actually accepts card payments. Why is this? The assumption is that it is more expensive to pay for goods and services using your debit/credit cards. Well, this is not true. For a quite some time, paying for services using your card has been free (regardless of the bank), something most people do not know.

The other problem that cashless payments suffer from is the issue of too many cards in the market. You find that people might be forced to walk around with around two (2) or three (3) smart cards, which presents the issue of insecurity – if these cards are stolen, your bank accounts are at risk. Other people have also reported being double-charged for transactions and as rare as this could be, we cannot ignore the fact that some merchants might try to be “smart” and double charge you for a transaction. Reports of reversals for such transactions, taking up to 90 days are scary and would be a reason to deter anyone from using their debit/credit cards for payments. So what if we move to Mobile payments systems (Android Pay/ Apple Pay)? As convenient as this would be, it would meet another hurdle, the technology is not available locally. Using mobile payments such as Android Pay, requires the merchants to have POS (Point of Sale) systems that are NFC capable, and the customers to have phones that actually support NFC.

Assuming that over 90% of smartphones in Kenya do not have NFC, since our market is saturated by the likes of Tecno, this means that the consumers would not be able to use their phones to make use of this technology. So we are back to the starting line. Either we continue using cash or adopt smart cards and ignore all the inconveniences that come with such cards.

To be continued…