Kenyans are waiting for a court determination on a petition filed at the High Court barring the reintroduction of transaction costs between banks and mobile money wallets with bated breaths. Whilst the reinstatement of the costs will serve well the financial and telco institutions, it might have negative effects on small businesses that have embraced cashless forms of payments through the mobile money wallets.   

At the height of Covid-19 in 2020, the government through the Ministry of Health discouraged handling of cash to prevent physical contacts as a measure to curb the spread of Covid-19. To facilitate the use of mobile money, the Central Bank of Kenya (CBK) introduced a relief waiver on transactions made between bank accounts and mobile wallets and vice versa.  The move cultivated the adoption of cashless transactions among businesses and Kenyans due to its convenience and affordability. With the waiver in place, small traders that normally do not have credit/debit card swipe machines were able to transact without the fear of incurring losses on charges. According to CBK data, the value of money transacted on mobile money was 56.8 per cent of Gross Domestic Product (GDP) in 2021 and the transactions significantly increased between March 2020 to November 2022 by over 6.2 million signaling growth in businesses and economy at large.

With an increased cashless economy, businesses thrived due to reduced risks such as losing money through theft, robbery, and receiving fake currency; vices that are common among small businesses. In addition, businesses and individuals could easily track transactions and enhance budgeting using mobile applications developed by service providers unlike cash transactions that tend to be strenuous as they require physical business records, withdrawal and deposits.

In particular, the gig business sector that entirely relies on a cashless model gained traction in the years the waiver was in effect. A report by VISA titled E-trade advancements in Sub-Saharan Africa indicate that in 2019 and 2020, Kenya ranked third in e-commerce volumes behind South Africa and Nigeria, pointing to affordability to transact on digital platforms. However, the gains necessitated by cashless systems stand to be lost if the High Court will maintain the transactions costs reinstatement as directed by CBK. Some Kenyans are likely to ditch mobile payments to escape fees levied in transactions to reduce spending so as to bear with the high cost of living.

For instance, customers and businesses might revert to largely using cash and in turn cut down on the many transactions made out of the affordability and convenience provided by digital payments.

In another way, increased transactional costs will negatively impact buying decisions and would eat into reinvestment or expansion capital, leading to losses or closure of businesses. This will have a direct negative impact to the economy in terms of job losses and reduced government revenue. In addition, the reintroduction of the charges might further exclude the unbanked Kenyans who largely depend on mobile money. Lowered transaction costs allowed many Kenyans who couldn’t open, access or frequently use their bank accounts to transact through their mobile money, however the increased costs might discourage them from cashless transactions and revert back to keeping money in their homes.   

As the government embarks on domestic revenue mobilisation with changes and introduction of more taxes, transaction costs are expected to rise. Some of the taxes that remain under contention by different stakeholders include excise duty tax on electronic transactions, one per cent  gross turnover minimum tax on companies and the 16 per cent tax on multinational companies that electronically provide their services, among other forms of taxes and levies. 

Building the economy will require supporting businesses to recover from losses due to Covid  effects and Russia-Ukraine war.

Financial institutions and their regulators should consider inclusive consultations before making deci-sions that might deter economic growth, such as increasing transaction costs and especially in the budding digital payment systems. 

—The writer is a Communications Consultant