The increasing adoption of digital payments has had a profound impact on economic growth in developing countries, and Kenya is no exception. The use of digital payment services, such as IntaSend, has greatly increased financial inclusion, reduced transaction costs, and improved the efficiency of the economy. However, the rise of digital payments has also brought potential negative impacts such as job loss and security risks. Our article about digital payments and economic growth in Kenya will provide a comprehensive overview of the relationship between digital payments and economic growth in Kenya, including a case study of IntaSend and an analysis of government policies and regulations related to digital payments. The article will also discuss the future outlook for digital payments and economic growth in Kenya, and provide recommendations for policymakers and businesses.
History of Digital Payments in Kenya
Kenya has been at the forefront of digital payments in Africa, with the launch of M-PESA in 2007, which was the first mobile money service on the continent. M-PESA, which is short for mobile pesa, meaning mobile money in Swahili, was developed by Safaricom, the country's largest mobile network operator, in partnership with Vodafone.
The service allows users to transfer money, pay bills and make purchases using their mobile phones. M-PESA quickly gained widespread adoption, and as of 2022, it had over 32 million users in Kenya. This has made it one of the most successful mobile money services in the world and has served as a model for other countries looking to implement similar services.
The success of M-PESA has been driven largely by the fact that it was designed to meet the needs of the people of Kenya. Before M-PESA, Kenyans relied on cash and checks for transactions, which were both slow and unreliable. With M-PESA, users can send and receive money instantly, without having to worry about the security or reliability of the transaction.
The development of digital payments in Kenya was a major milestone in the country's technological progress, and it has grown significantly over the last decade. In 2011, the Central Bank of Kenya developed a regulatory framework for mobile money services and other electronic payments, allowing the industry to expand even further.
Since then, the number of banks and financial institutions offering mobile money services has grown, and the number of transactions processed through mobile money services has increased exponentially. This has allowed people to access financial services more quickly and easily than ever before.
The Current State of the Kenyan Economy
Kenya has a developing economy, with a growing population and a strong services sector. However, it also faces challenges such as high poverty rates and inequality. The country's GDP has grown at an average of 5% per year over the last decade, driven by sectors such as agriculture, tourism, and telecommunications.
Despite this growth, poverty remains a significant issue, with an estimated 23.4 million Kenyans living below the poverty line according to the poverty report by the Kenyan National Bureau of Statistics via All Africa. The government has been working to address these challenges through initiatives such as Vision 2030 and the Big Four Agenda.
Vision 2030 is a long-term development plan that aims to transform Kenya into a newly industrialized, middle-income country providing a high quality of life to all its citizens. The Big Four Agenda is a set of priority areas that the government has identified as key to achieving this vision, which includes food security, affordable housing, universal healthcare, and manufacturing.
The Role of Digital Payments in Economic Growth
Digital payments have played a significant role in promoting economic growth in Kenya, by increasing financial inclusion, reducing transaction costs, and improving the efficiency of the economy. For example, the widespread adoption of M-PESA has enabled Kenyans in rural areas to access financial services and has also facilitated small and informal businesses to access more customers and expand their operations.
According to the Central Bank of Kenya, digital payments in the country have grown by an average of 18% per year since the launch of M-PESA, and account for more than half of all transactions in the country. This growth has been driven by the increasing penetration of mobile phones and improvements in infrastructure and regulations. The adoption of digital payments has also led to increased competition among financial service providers and has helped to drive down the cost of transactions.
Positive Impacts of Digital Payments on the Kenyan Economy
Record-keeping
Digital payments have made it easier for individuals and businesses to keep records of their transactions, which can be useful for tax and accounting purposes. Improved recordkeeping has enabled companies to better manage their finances and prevent fraud or errors. The use of digital payment platforms makes it easier for users to quickly and efficiently access their financial records, and many platforms offer tools such as budgeting and tracking that can help with better financial management. Digital payments also allow for shared financial accounts, which can help households keep track of their finances in one place. Online payments offer detailed transaction histories and notifications, which can help make sure that payments are made on time and customers are billed correctly.
Expanded opportunities for business
Digital payments have enabled small and informal businesses to access more customers and expand their operations, which has led to increased economic activity and job creation. With the help of digital payment platforms, businesses can easily access new markets and gain broader exposure for their services. This helps them to enhance their customer base as well as their profitability. These platforms offer secure payment solutions with low transaction fees and real-time tracking of payments for better transparency. Furthermore, digital payment platforms provide small businesses with access to data that can be used to gain insights into customer behavior and preferences, thereby allowing them to better serve their customers and improve the overall customer experience.
Transaction costs
Digital payments have made it cheaper and more convenient for people to send and receive money, which has enabled small businesses to expand their operations and reach new customers. One of the most prominent advantages of digital payments is the reduced transaction costs that businesses must pay when accepting payments electronically. Having lower transaction costs can help businesses to reduce their overall costs, allowing them to pass on these savings to the customers and expand their operations further.
Financial inclusion
Digital payments have enabled people in remote and underserved areas to access financial services, such as savings and credit, which has helped to reduce poverty and improve the standard of living for many Kenyans. This technology has also made it easier for businesses to use online financial services, such as mobile banking and digital payment platforms, to make payments and receive payments. This has made it much easier for people to buy products and services online and transfer money across the country. As a result, the use of digital payments in Kenya has increased significantly, leading to an increase in financial inclusion in the country.
Increased efficiency
Digital payments have reduced the need for physical cash, making transactions faster and more secure. This has increased the efficiency of the economy, by reducing the time and resources required for transactions. Moreover, digital payments have enabled new forms of transactions, such as payments and transfers across borders. This has made it easier to conduct business transactions with customers and suppliers from different countries. Additionally, digital payments have enabled businesses to process real-time payments, in turn eliminating the need for invoices, receipts, and other paperwork. All of this has drastically improved the speed and accuracy of transactions, making the economy more efficient.
Negative Impacts of Digital Payments on the Kenyan Economy
Security risks
As more transactions are conducted digitally, there is a greater risk of fraud and security breaches, which can result in financial losses for individuals and businesses. It is important to be aware of the potential risks associated with online activities and to implement appropriate security measures to protect against unauthorized access and data breaches. Cybersecurity experts recommend using strong passwords, two-factor authentication, and encryption technology to protect personal information, as well as regularly updating software to ensure the most current security protocols are in place.
Dependence on technology
Digital payments are reliant on technology, which can be prone to failures and disruptions. This can lead to inconvenience and loss of business for customers and merchants. Our reliance on technology for digital payments can mean that services can easily become unavailable, creating a snowballing effect of frustration for customers. One example of this is when a merchant's payment system is unable to process transactions due to a technical issue. In some cases, the system may be offline for hours, resulting in customers having to wait or go somewhere else. This could potentially lead to customers permanently leaving the service, which would cause further financial loss to the merchant.
Case Study: IntaSend
IntaSend is a fully-fledged and trusted digital payment provider in Kenya. The company offers a wide range of digital payment services, including online and mobile payments, e-commerce, and several other financial tools that help businesses and individuals collect payments from their customers and clients easily. IntaSend is known for its reliability, security, and ease of use, which has made it a popular choice among consumers and businesses.
Impact
IntaSend has had a significant impact on the Kenyan economy. The company's digital payment services have increased financial inclusion by making it easy for people to access financial services, such as savings and credit. IntaSend has also reduced transaction costs by making it cheaper and more convenient for people to send and receive money, which has enabled small businesses to expand their operations and reach new customers. Additionally, IntaSend's services, such as bulk disbursements for businesses that need to make large payments to multiple recipients at a time, no-code payment links for unregistered businesses and freelancers, and payment APIs for developer and businesses, have increased efficiency by reducing the need for physical cash and making transactions faster and more secure.
Comparison with other digital payment providers
While IntaSend is a leading digital payment provider in Kenya, there are other systems available. For example, PesaPal and iPay, and VirtualPay are also popular in the market, thus providing the much-needed competition the industry needs to continue to thrive. These alternative systems have been developed to cater to the different needs and preferences of customers and to increase competition in the market.
Government Policies and Regulations
The Kenyan government has implemented several policies and regulations to promote the growth of digital payments in the country. These include measures to increase financial inclusion, such as the National Financial Inclusion Strategy, and the National Payment Systems Act, which aims to create a secure and efficient payment system in Kenya. The government has also established the Financial Sector Deepening (FSD) Kenya program, which aims to expand access to financial services, including digital payments, to underserved populations.
Overall, the government's policies and regulations have been effective in promoting the growth of digital payments in Kenya. The National Financial Inclusion Strategy, for example, has helped to increase access to financial services, including digital payments, in underserved areas, which has helped to reduce poverty and improve the standard of living for many Kenyans.
The National Payment Systems Act has also helped to create a secure and efficient payment system, which has increased the confidence of consumers and businesses in digital payments. The FSD Kenya program has also been successful in promoting the growth of digital payments in the country, by providing technical assistance and funding to organizations that provide digital financial services.
Parting Words
This article has provided a comprehensive overview of the relationship between digital payments and economic growth in Kenya. It has highlighted the positive impacts of digital payments, such as increased financial inclusion, reduced transaction costs, and increased efficiency. Additionally, it has provided a case study of the impact of a specific digital payment provider, IntaSend, on the Kenyan economy and has discussed the government policies and regulations related to digital payments in Kenya and their effectiveness in promoting economic growth. As an online business that accepts and sends payments frequently, IntaSend can help you save a lot of money, thanks to its fair pricing and competitive rates. If you want to help your business grow faster and save a lot of money going forward, you should start by creating an IntaSend account.
Cover Photo by Firmbee.com on Unsplash
