Electronic Payments Gain Favour With Banks
Friday, October 21, 2005
By the end of this year, Kenya’s banks expect to issue nearly half a million new credit cards.
Last year only seven banks were issuing the cards. Today they are more than 16.
These developments in the private sector are mirrored in the public sphere. Earlier this year, the Central Bank of Kenya launched the Kenya Electronic Payment and Settlement System (KEPSS), which enables customers to pay and receive large payments on a real-time basis. In a society where ’cash is king’, electronic payments are emerging as a major force.
The transition to cashless payments can be seen elsewhere on the continent. In South Africa, for example, the value of electronic payments between 1989 and 2003 rose from 2.8 per cent to 61.4 per cent.
The South African situation is similar to trends elsewhere in the world, where technology has provided a means to move from cash-based payments to more efficient cashless transfers. The British government, for example, estimates that it saves five million Pounds Sterling per month using visa payment systems for procurement.
Automatic teller machines (ATMs) and point of sale facilities mean that it costs less for banks to deliver services to customers through these mediums than through bricks and mortar branches.
In much the same way, electronic payments and transfers handled by ATMs, the internet and other methods are more cost effective than paper-based systems, particularly when it comes to point of sale transactions, recurring payments, employee salaries and the transfer of large sums. An electronic payment costs about one-third to half as much as a paper-based transaction.
Some observers estimate that the total cost to an economy of maintaining a cash-based payment system can be as much as five per cent of gross domestic product (GDP).
While it is difficult to put an exact figure on the impact which electronic payment systems and new banking technologies will have on Kenya’s economic growth, it is clear that the resulting lower transaction costs and higher levels of consumption will significantly enhance economic growth, enabling the Kenyan economy to achieve the rates of growth needed to defeat poverty.
Electronic payments offer the same freedom as bank notes, but without the associated risks of holding cash for transacting. For those people who fear being robbed of their cash while walking to the supermarket, cards offer a risk-free solution.
Moreover, they provide you with a means to track the money you spend. Unlike cash, which just slips through your fingers, a debit or credit card statement provides a clear record of expenditure, which can be particularly useful for accounting purposes.
The Narc government has stated its commitment to ensure that the marginalised parts of the Kenyan community are included in the process of growth and development.
High costs of financial services and inadequate access to banking accounts have traditionally undermined this goal. New, cheaper banking technologies, including credit and debit cards, offer a means to bring Kenya’s citizens into the formal financial services system, which is good news for “wananchi” and the Kenyan economy.
Functioning electronic payment systems encourage the movement of cash into banks. There is sufficient evidence to suggest that a 10 per cent shift of cash into deposits or other reserves that can be used for loans and other productive purposes may increase GDP by more than one per cent annually.
Cashless payments in the form of internet banking, electronic payments and cards have a positive effect on the rate of growth of GDP. For Kenya to attain the seven per cent economic growth target identified by New Partnership for Africa’s Development (Nepad) as a requirement to defeat poverty, cashless transfers must play their part.
