The Central Bank of Kenya (CBK) has identified low transaction costs as a key component of a proposed central bank digital currency (CBDC) – which will operate like Safaricom’s billion-dollar mobile money service M-Pesa.
Of course, the two are completely different, but the introduction of a central bank-issued digital currency will undoubtedly have a ripple effect on how money works in Kenya. In particular, CBK’s policy-makers have noted that the digital currency will be easily transferable and enable Kenyans to make payments easily – two things that most Kenyans primarily associate with M-Pesa.
In the six months to September 2021, the value of M-Pesa transactions increased by 51.5 percent to Ksh13.7 trillion, or about 13% of Kenya’s gross domestic product (GDP) in 2020. The figure is expected to be higher when the telco announces it. Its full year results in March this year.
Kenya is recognized as a global leader and leader in mobile money thanks to M-Pesa. CBK in a discussion paper on the digital currency identified key challenges with money transfer services in Kenya, which are opportunities for CBDCs to offer solutions.
High transaction costs have long been recognized by critics of M-Pesa as one of its disadvantages. Transferring cash between mobile money services operated by different telecommunications companies is also expensive, as is cross-border payments.
“The trend in Kenya’s domestic payments reflects the existence of a digital currency (e-money) that is robust, inclusive and highly active. Therefore, the consideration of introducing a CBDC into the payment system in Kenya is to reduce cost, interoperability and May target increasing cross-border payments.”
“Assuming that the Central Bank does not charge any fees for CBDCs, this will facilitate online transactions of small value given the relatively low (or no) associated fees compared to existing payment fees,” the CBK paper reads in part. .
Safaricom rival Telkom Kenya sought regulatory orders through parliament in November 2021 to force Safaricom to cut M-Pesa fees levied for cash transfers on rival platforms.
Cash transfers from M-Pesa to one of the smaller mobile money services customers may be charged more than four times as much as transfers between Safaricom customers – described as “unregistered users”. Telkom’s proposal was one of many as they lobbied for a tighter regulatory lease on the market leader.
It is therefore no surprise that CBK identified interoperability and cost as central to the idea of CBDCs.
“While the industry moved to enable interoperability of mobile wallets in 2018, this is limited to P2P payments only and has yet to be expanded to both merchant and agent interoperability and even P2P CBDC can hold promise for this interoperability,” CBK said.
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