Electronic payments: Enabling a cashless economic transformation in Rwanda


A few years back in Rwanda, applying for government services was a frustrating experience. People seeking for these services had to endure all sorts of challenges such as costly journeys to agencies and long queues.

Today, it is simple and fast. An online application takes few minutes, and in hours, services are delivered.

Paying for electricity is no longer painful because with just a mobile phone, it takes a minute. Smart transport is a reality with prepaid Tap&Go cards, commuters no longer worry about the long bus delays. Moto services are also under uberification with SafeMotos and Yego Moto offering passengers convenient travel and helping drivers to work efficiently.

Such is the luxury Rwandans are enjoying, thanks to government efforts to promote a cashless economy.

As the world goes through the digital revolution, embracing a cashless vision is a solution that will strengthen Rwanda’s growth. Government’s efforts to put in place infrastructure such as fiber optic cables across the country to enable connectivity are a cornerstone.

Although using physical cash has been the tradition, to achieve a cashless economy, Rwandans will need to embrace electronic payments (e-payments).

For some people, e-payments are an unwanted disruption. Merchants argue that electronic payments can be costly. “They charge us to use cash machines (POS),” noted one merchant. “It is very expensive than just accepting cash”. Paying a small fee to use e-payments is a cost she cannot bear.

Using cash may seem less costly, but it comes at a high cost than e-payments.

Think of the costs incurred by commuters and bus operators, before the inception of Tap&Go. A bus operator incurred costs of employing a conductor and endured the risk of money loss. A consumer incurred the cost of bus delays, the inconvenience of carrying and losing cash.

A 2017 study by Visa examining 100 cities in the world, including Kigali, puts the magnitude of these costs to light. It revealed that, on average, businesses spend 2% of revenue per month for incoming non-digital payments and that businesses lose an equivalent of 4% of their revenues per month due to theft, money counterfeit, and cash register shortages. With e-payments, however, these costs are slashed.

E-payments provide consumers with convenient, less costly and secure access to their funds, reduce cash and check handling for merchants, and expand the pool of customers who are guaranteed to pay.

E-payments are not just convenient, they play an important role in stimulating economic growth. The rapid proliferation of electronic payments, in particular credit, debit and prepaid cards, is changing how consumers pay for goods and services, how merchants manage their businesses and how governments make and collect all sorts of payments. All of this reduces friction in the overall economy, leads to increased spending on goods and services, which in turn, creates a virtuous economic cycle whereby increased consumption translates into increased production, more jobs, higher incomes and greater economic prosperity.

By helping those outside the formal banking system to access formal financial services for example, e-payments promote financial inclusion – mobile money is a case in point. In 2011, there were only FRW 700 million in mobile money transactions in Rwanda, in 2017, mobile money transactions in Rwanda have peaked to Rwf1.2 trillion, which points to the increased economic activity as well as growth in financial inclusion.

Moreover, with mobile money, customers can instantly send payments from their mobile phones instead of traveling an hour or more to distant bank branches, a 2016 Finsocpe survey showed that consumers spend on average an hour to get to a bank branch.

With e-payments, money can cross borders at a lower cost, allowing consumers to benefit from related savings. The cost of making remittances via e-payments for example, is more than half that of other formal domestic-remittance services.

Consumers also have access to a large range of goods and services sold online while opportunities are limited for users of cash. In Rwanda, a consumer can now access different cuisines using Jumia Food, a mobile application, without incurring transport costs and time in search for food.

Governments also benefit from e-payments. The less cash is transacted, the more people are pulled into the formal, taxpaying economy and the more transparent services become. A paperless system should cut delays and corruption, the increased documentation and transparency help to increase tax receipts.

In Rwanda, for example, thanks to Rwanda Online Project, Payments to Government (P2G) grew by 355%, up from 71,655 in June 2016 to 326,210 transactions in June 2017 (in volume) and by 315% in value, (from Rwf492 million in June 2016 to Rwf2 billion in June 2017.

On average, central banks spend around $2 billion when printing bank notes. The life span of a note in Rwanda is around 4 months (against an average of 8 months with a higher level of cashless means). Adopting e-payments in Rwanda will reduce these costs, incurred by BNR to print and distribute cash.

Cash is data-less, which means that cash payments for, say, water, don’t establish a history for someone who reliably pays for water. But the good credit history that would show in a user’s e-payments would enable a bank to make better lending decisions, which multiply the effect of its investments.

Simply put, a consumer paying her bill electronically builds up a credit history and, because she has a credit history, she is able to secure a loan, which enables investment and economic growth.

The progress that Rwanda has made so far is testament to how digital transformation can drive economic growth. As the country pushes forward with its development agenda, a cashless vision will play an important role. To achieve this vision it will require that businesses, large and small, public institutions and all Rwandans, embrace e-payments.

All that is required is a collective effort. This is the Rwandan spirit!

The writer is an economist in the Monetary Policy and Research Department at the National Bank of Rwanda.