M-Pesa Visa undermines banks on exchange fees
The M-Pesa virtual Visa card is undermining Kenya’s commercial banks with lower exchange rates in the race to get a bigger share of the country’s cross-border payments market.
The virtual card, which is initially available to more than 30 million M-Pesa users in Kenya, charges 121.92 shillings to the dollar for payments from Visa’s 61 million merchants.
Bank users will need more shillings when using their Visa cards for a dollar payment, a sign that Safaricom is banking on pricing to gain market share in a business segment that has been dominated by lenders.
Foreign currency payments via KCB group debit card are based on 128.10 Sh against the dollar, DTB Group (128 Sh), Cooperative Bank (127.95 Sh), NCBA Group (126.80 Sh), Equity (Sh126), Standard Chartered (Sh125.37) and Sh125 for Absa.
M-Pesa has overtaken voice to become Safaricom’s main source of revenue, underscoring the growth of the financial service.
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Mobile money revenue jumped to 107.7 billion shillings, supported by the return to charging for transactions below 1,000 shillings and improved business activity, beating voice as the main income of the company.
Financial service now accounts for 38.3% of total revenue of 281 billion shillings, ahead of voice contribution at 31.2% in the reporting period.
Safaricom has made applications to offer additional services on M-Pesa such as investments and insurance whose deployment awaits regulatory approval.
Merchant payments via M-Pesa have increased, especially during Covid-19, as consumers increasingly conduct cashless transactions to avoid contracting the highly infectious virus.
Lipa na M-Pesa, which launched in June 2013, has aggressively recruited merchants across the country, including large and small businesses such as gas stations, supermarkets, convenience stores and restaurants.
This has seen it overtake card payments – run by banks and their global payment technology partners such as Visa and Mastercard – which have largely focused on formal retailers.
Active Lipa na M-Pesa merchants grew by 72.8% to 387,000, highlighting the impact of the increased preference for cashless transactions.
This means that the M-Pesa rate is cheaper between Sh3.08 and Sh6.18 compared to those of Kenya’s major banks which are fighting to capture part of Africa’s $40 billion a year subscription market. .
The exchange rate has become a big issue in recent years after Kenya after strong demand for dollars from various sectors outpaced weak inflows, driving the shilling to record highs.
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The shilling closed yesterday at 117.90 shillings against the dollar against 114.95 shillings in April and 107.85 shillings a year ago, making imports and foreign currency payments more expensive.
“Partnering with Visa has allowed us to extend a very affordable exchange rate of just 3.5%, one of the lowest in the market, making foreign exchange transactions more affordable for over 30 million M-PESA customers. in Kenya,” M-Pesa said. Managing Director Africa Sitoyo Lopokoiyit.
“The M-Pesa Virtual Card seeks to enhance convenience by providing customers with an extremely affordable and secure way to make international payments online to millions of businesses such as Netflix, Google, Spotify and many more directly to from a customer’s balance,” Mr Lopokoiyit told the business daily.
Commercial banks charge a commission of between four and seven percent on top of Visa’s exchange rate, which yesterday was quoted at Sh118 and matches the average purchase price of Sh117.99 set by the Central Bank of Kenya (CBK) .
The M-Pesa Global Pay Visa virtual card will allow users to securely pay 100 million overseas merchants like Amazon and Alibaba from their mobile phones without credit cards or accounts with processors like PayPal. The virtual card is also targeting fast-growing subscription markets in Africa for services like Netflix and Spotify.
The virtual card is initially available to over 30 million M-Pesa users in Kenya and has been rolled out to Tanzania, where trials are underway, Mozambique, Congo, Lesotho and Ghana by April 2023 .
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Transactions are subject to M-Pesa platform limits of Sh150,000 for a single transaction and a daily limit of Sh300,000. Users will be able to use the virtual card when traveling abroad.
M-Pesa, which was launched by Safaricom in 2007, allows users to transfer money, make payments for goods and services, as well as save and borrow through partnerships with local lenders.
Previous attempts to integrate it into the global payments system include a 2018 deal with Western Union, which allows M-Pesa users to send money around the world.
International money transfers, which also include PayPal and Alipay, were one of the fastest growing segments for M-Pesa’s revenue last year, although its share of sales remained quite low.