KENYA: CBK walks tight rope on mobile transaction fees waiver

Kenya’s financial sector regulator, the Central Bank of Kenya, (CBK) is under the spotlight as the industry eagerly awaits a decision on whether mobile transactions will remain exempted from charges next year.

The regulator is caught between a rock and a hard place, as it weighs the decision to scrap the waiver at the behest of lobbying from the financial sector or maintain the same in its mandate of broadening financial inclusion. 

CBK Governor Patrick Njoroge has been non-committal, indicating the regulator could very well make the waiver permanent, as a balancing act between the financial inclusion and commission profits.

“We are thinking about all the options,” said Njoroge when asked whether the regulator would extend the transaction fees waiver past the end-year deadline.

“At this moment, we cannot announce that we will or won’t, the best thing is to be a bit more patience and, we’ll say something in due course.”

The CBK boss last week said the policy, introduced at the onset of the pandemic to reduce the risk of handling cash, has been successful in expanding digital payments among low-income earners.

“In terms of mobile numbers, the use of digital platforms has increased,” said Njoroge during a press briefing last week. “From March to October, there has been growth in the low-value transaction (less than Sh100) in the order of 15 per cent,” he said.

“Some 2.7 million new or previously dormant accounts, have been brought on stream and this has increased the number of active mobile wallets by 10 per cent,” said Njoroge.

The numbers point to success in accelerating digital inclusion and payments among low-income earners, something that the industry has been pushing for years.

According to the 2019 FinaAccess Household Survey by the CBK, Kenya National Bureau of Statistics and the Financial Sector Deepening, cash remains the dominant form of payment, with 94 per cent of enterprises still relying on it despite the adoption of mobile payments.

“Cash is used widely for daily expenses, bills payments, fee payments, sent or receive money and purchase assets,” states the report in part.

Low-income earners cited cash as the dominant form of receiving credit for their immediate needs.  According to the FinAccess Survey, 30 per cent of low-income earners surveyed relied on a chama or shopkeeper credit to bridge their household cash demands.

Another 23 per cent stored their liquid cash in a secret hiding place while 19 per cent resorted to neighbours, family or friends for their emergency credit needs. 

Respondents cited high transaction costs and unpredictability in pricing as part of the reasons that discourage them from taking on financial products from commercial lenders and fintechs.

The FinAccess Survey 2019 indicates 22 per cent of Kenyans at the bottom tier of the economic ladder do not have access to either informal or formal channels of financial services. In April this year, the CBK announced a waiver on mobile money transactions below Sh1,000 and on bank transfers to mobile to accelerate digital transactions.

“The value of person to person transactions has increased by 87 per cent between March and October 2020 and the values have increased by 55 per cent,” said CBK boss. “For us, digitalisation is the way to go and is extremely important going forward as a significant help in remedial measures towards Covid-19,” he said. 

This is likely to be received with apprehension by digital financial service providers and banks whose earnings shrunk due to transaction fees waiver. 

Safaricom has been the worst hit by the fees waiver, going by the company’s latest financial results. The telco experienced a Sh2 billion fall in after-tax profit for the half-year ended September 2020.