Cash barrier to M-Pesa uptake in Ethiopia

 

Safaricom Ethiopia has identified cash dominance as a key barrier to growing its payments business represented using its M-Pesa platform.

The telco said the proliferation of cash, especially for small-value transactions was a challenge but an opportunity to digitise payments in the country as the operator also eyes the rollout of financial services.

“Banking penetration in urban areas is relatively high but 99 percent of small value transactions are in cash,” Kenya’s Safaricom Plc, which is the majority owner of the Ethiopian business, told investors of the subsidiary’s performance last month.

Safaricom Ethiopia launched the mobile money service on August 15, 2023, and had acquired 1.1 million customers at the end of the following month. Over the short period, the value of transactions reached Sh43.7 billion and the number of active merchants stood at 12,400. The start-up telco earned revenues of Sh7.2 million from the mobile money platform.

According to a 2021 report by the World Bank on financial inclusion and digital payments, cash in Ethiopia is an overwhelmingly dominant payment method for the population, a sharp contrast to other markets in the region, including Kenya where non-cash payments have gained a foothold.

“Most people still rely on cash to pay utility bills and receive payments. Almost all adults at 99 percent pay utility bills with cash, compared to 12 percent of people in Kenya and 59 percent in the region as a whole,” the report notes.

Safaricom is also expected to tackle lower volumes of transfers between urban and rural areas.

The lower incidence of cash transfers to villages from urban centres is unlike Kenya where Safaricom cashed in on transfers upcountry from cities during the scaling of M-Pesa services following the launch in 2007.

“The social construct is less geared to town-to-village money transfer,” Safaricom added.

On the payments front, Safaricom will be seeking to take on a low penetration of financial services where only 11 percent of the population or one out of every 10 Ethiopians has accessed a loan from a financial institution.

According to the World Bank, the majority of Ethiopians have failed to open bank accounts, giving insufficient funds as the reason for staying unbanked, a suggestion, according to the multilateral lender, that the population believe that financial services are not for the poor.

In their place, Ethiopians rely on informal institutions to meet their financial needs. The World Bank report, for instance, shows that although 62 percent of Ethiopians reported saving money, only 26 percent saved formally at financial institutions while 38 percent saved with a person outside the family or at an informal savings club.

Ethiopians are also more likely to borrow from family or friends or from a savings club than from a bank.

Safaricom’s M-Pesa will have to take on the challenges of growing payments and financial services to a comparable size to Kenya and other markets.

Safaricom commenced M-Pesa operations in Ethiopia last year with the operator expecting uptake to be driven first by consumer payments before scaling to merchant payments and financial services such as micro-credit.

The telco expects to leverage partnerships including integration with local banks, shopping outlets including supermarkets and international money transfer services.

By KEPHA MUIRURI