Kenya has emerged as a leader in financial inclusion in Africa, thanks to the fast pace of innovation in the country’s financial services and technological sectors over the last decade. Data from the FinAccess Household Survey shows that more than 80 per cent of adults in Kenya today have access to the formal financial system, a remarkable improvement from just 26 per cent in 2010.
The deepening of financial inclusion in Kenya over this period has been a big boon for payments technology company, Visa. The global payments giant connects consumers, businesses, and governments in more than 200 countries to fast, secure, and reliable electronic payments.
The explosive growth in the number of Kenyans with access to the financial system has led to an increase in the volume and value of transactions processed through Visa’s systems. Visa is not a bank and does not issue cards, extend credit, or set rates and fees for consumers. However, its innovations enable its financial institution customers, which include most of Kenya’s 42 licensed commercial banks,to offer consumers more choices. Consumers can pay now with debit, pay ahead of time with prepaid or pay later with credit products. Visa branded debit, credit or prepaid cards are primarily used for making purchases of goods and services face to face and online, and for withdrawing cash at ATMs.
As the payments company with the highest market share in card transactions in Kenya, Visa has benefited immensely from the steady rise in the volume and value of card transactions in recent years. The Central Bank of Kenya (CBK) notes that 42 million card transactions were made in Kenya in 2021, up close to 8 times from 5.5 million transactions in 2010. The value of these transactions has also exploded from Sh44 billion in 2010 to Sh194 billion in 2021, underlining the robust growth that Visa has enjoyed as a market leader in card transactions.
To sustain its growth in Kenya, Visa has gone on a charm offensive and is actively educating consumers about the benefits of cashless payments. It has also extended its reach among Small and Medium-sized Enterprises (SMEs). Unlike most large businesses that support cashless payments, SMEs represent a huge untapped opportunity.
Tapping into SMEs
Many SMEs are still in the early stages of transitioning to cashless payments, creating an opportunity for Visa to position itself as the payments partner of choice for SMEs, which according to one study by Financial Sector Deepening (FSD), account for 90 per cent of all private enterprises in Kenya, 93 per cent of the labour force and 24 per cent of GDP.
Visa is also helping women-owned SMEs bridge knowledge gaps and access technology that can improve efficiencies and accelerate business growth. In 2021, it unveiled new research titled “Understanding Women Owned SMEs”, which explores the role of technologies such as digital payments in enabling the business success of female entrepreneurs in South Africa, Kenya, and Nigeria. The research highlights the top business challenges experienced by women entrepreneurs in South Africa, Kenya and Nigeria, the impact of Covid-19 on these business and how digital payments have accelerated business growth in over 80% of the businesses surveyed.
The CBK notes in its National Payments Strategy 2022-2025 research paper that usage of cards in Kenya is relatively low and there is significant room for growth if key issues are addressed. These issues include poor network of Point of Sale (POS) terminals, cost of POS terminals and acceptance by merchants, and reduced use, including negative perception among customers due to incidents of fraud.
To mitigate these challenges, Visa has stepped up its investments in POS terminals, including educating merchants on the latest upgrades. The company has also ramped up its investments in security through technology upgrades and consumer education. It’s worth noting that Kenya was one of the first countries in the region where Visa launched contactless payments.
Contactless payments are safer because they use protocols like encoding (replacing sensitive and private information such as the 16-digit account numbers with a unique digital identifier called the code). The EMV chip on Visa’s contactless cards generates a one-time encryption code, and thus prevents fraud and counterfeiting attempts.
Investing in innovation
A major challenge for Visa as it continues to focus on growth and expansion in Kenya is competition. Kenya’s financial services sector is highly competitive. In the SME sector, for example, where Visa is recruiting more small businesses into the world of cashless payments, there is the competition from services such as Safaricom’s Lipa Na M-PESA, among others.
The best way to differentiate your products and services in a competitive market is by investing in innovation, something Visa is doing in Kenya. The multinational recently opened a world-class innovation studio in Kenya, its first in Africa. Officially opened by the CBK Governor, Dr. Patrick Njoroge, the facility is geared to serve the entire sub-Saharan Africa region. It is also part of Visa’s global network of innovation studios, which includes sites in Dubai, London, Miami, San Francisco, and Singapore.
The studio is set to assist Visa clients and partners from all over the continent in expanding their service offerings. Ideas for expanding the growth of emerging payment areas such as Tap to Phone and Pay on Delivery will be explored alongside the ongoing development of cutting-edge smarter payment solutions that leverage blockchain, the Internet of Things, Virtual Reality, and biometrics.
This new facility demonstrates Visa’s commitment to fostering innovation and providing opportunities for clients and fintech partners to collaborate on market-relevant payment and commerce solutions across the region. It also marks the beginning of a new and exciting chapter in Visa’s growth narrative in Kenya and Africa where growth and innovation will be driven primarily by African talent.