1 February 2013

Kenya: A Cashless Society Is the Way Forward


When the first credit card was introduced in 1946, and the debit card in 1978, the world began its transition to a cashless society. Fast forward to today and the use of these cards has grown significantly.

Today, 15 per cent of transactions carried out worldwide are cashless, pointing to the increasing popularity of pre-paid, debit and credit cards as an acceptable means of payment in day-to-day transactions.

For Kenya's middle and upper classes, the reality of a cashless society is something that has become part of everyday life, as evidenced by the results of a survey by the Central Bank of Kenya indicating that cashless transactions grew 83 per cent to Sh386 .6 billion in the first half of 2012 from Sh211.2 billion recorded during the same period in 2011.

Although cash remains the main method of payment in Kenya at over 98 per cent of transactions, there continues to be increased confidence in the use of plastic money owing largely to its convenience and the risks associated with cash-based transactions.

But even as the uptake of credit and debit cards surges (the number of debit and credit cards in the market grew to about 10.6 million by the end of 2012), the issue of security remains a real concern for both consumers and financial institutions, for with the increasing popularity of plastic money has also been an increase in the cases of card fraud.

The rise of the tech-savvy consumer has in this case been both a blessing and a curse to the financial services sector, because for every innovation made, there is an individual working on a means to cracking the security features that come with it

According to research by audit firm Deloitte, an estimated Sh4 billion was lost by East African banks between 2011 and the first quarter of 2012, losses which could be higher due to cases that go unreported.

However the push for adoption of more secure payment systems is likely to change this. The recently unveiled campaign by financial sector players led by MasterCard and Visa, dubbed 'The great migration to EMV,' signals the beginning of a shift in how we approach the use of plastic money.

Although the system has been in use since its development in 1996, the rest of Africa is only now catching up, in the wake of increased cases of card fraud and cybercrime.

The system, which was developed jointly by Europay, MasterCard and Visa hence the abbreviated form EMV is considered the standard for secure payments around the world, having proven that its use dramatically cuts cases of card fraud.

Admittedly the migration will call for significant investment by banks and providers of payment solutions, but its benefits far outweigh the cost implications. Letting consumers know they are protected against fraud is integral to growing this business.

The migration to EMV guarantees security by enabling safer, smarter and more secure transactions across cards, contactless, mobile, and remote payment channels.

When a consumer uses an EMV-enabled device to pay at an EMV terminal, it can be instantly identified as an authentic, approved payment instrument belonging to that consumer through a process called dynamic authentication.

When used with a PIN (Personal Identification Number), the chip verifies that the consumer is indeed holding his or her own card, a factor key to cutting incidences of credit/debit card fraud.

Such additional security measures mean that consumers can feel safer carrying out transactions using plastic money, and will in the long-run save the banking sector billions of shillings lost through card fraud and more billions spent by Central Banks printing and transporting money.

However our campaign to increase the uptake of EMV-chip cards cannot be successful without partnerships. Just recently MasterCard and Equity Bank unveiled a partnership that will result in the distribution of five million EMV-chip and PayPass enabled cards to be introduced in Kenya over the next 18 months before spreading out to the rest of East and Central Africa.

This is the biggest ever single roll-out of this technology in sub-Saharan Africa. This may be the beginning of a new dawn for the region, but even so, an element of trust will be required before more people can take up the use of cashless transactions.

We may be seeing more people using plastic money now, but the evolution of the tech-savvy consumer also means that no longer is it acceptable just to say that our payments systems are safe; the consumer must feel that the service provider is guaranteeing this safety, which is what this migration to EMV offers. This is where the partnerships and investment in creating awareness come in. We must convince our customers that this is the future.

That said I strongly believe that we are witnessing a change in attitudes towards modes of payment, thanks largely to the success of mobile money payments.

Apart from putting Kenya on the global map for their contributions to financial inclusion, mobile money services have redefined the cashless journey, pointing to opportunities for card payments by teaching us the value of efficiency, convenience and above all, inclusion.

Statistics from the CBK putting the value of mobile wallet transactions at Sh1.117 trillion between January and September 2012 are proof that in the last few years more Kenyans have realized that they don't have to have cold, hard cash to carry out a transaction; they just need a safe, reliable, inclusive payment system.

This in itself is indicative of both the market's willingness to transition to a cashless society, and the opportunities present for other modes of non-cash payment to grow.

I believe that if we can assure consumers that pre-paid, debit and credit cards offer these three; we can make the dream of a cashless society a reality. We have already taken our baby steps and walked, now is the time to run.

The writer is the Vice President and Area Business Head, East Africa & Indian Ocean Islands, MasterCard Worldwide

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