Three things that can speed up transition to cash-lite economy

Kenya remains a case study when it comes to a cashless economy. [Istockphoto]

Even way before the Covid-19 pandemic hit the globe, the move to cashless transactions had been at the centre of most economies. The journey to cash-lite economies is helping economies across the world increase transparency in the financial markets while also addressing threats like money laundering. Of course, for the consumer, it is more convenient, reliable and reduces exposure to theft.

Sweden, which aims for a cashless economy by 2023, has a well-developed payment market that has been growing at a robust pace over the years. As per the latest available records, over 80 per cent of Swedes use cards, with 58 per cent of payments being made by card and only six per cent in cash. This journey has been powered by factors such as a robust card payment system, strong internet infrastructure, a popular mobile payment app known as Swish and a supportive legal framework.

Closer to home, the Rwandese government has made great efforts in promoting cashless payments through the Smart Rwanda Master Plan that seeks to digitise all government financial transactions thus allowing citizens to make online payments as well as the use of debit and credit cards for services in health care, finance and education, among other areas. Somalia has also made similar efforts with the launch of a national payments system which is allowing the country to centralise its digital payments.

Kenya remains a case study when it comes to a cashless economy, thanks largely to mobile money payment pioneered by M-Pesa. It is no wonder that Kenya is one of the biggest hubs of Fintech innovations in Africa. Over the years, the Central Bank of Kenya has facilitated major improvements in payment services to enhance a robust National Payment System which has helped to modernise the payment system, created and maintained control over the standardised practices of payment system players.

The Covid-19 pandemic also proliferated digital-only payment policies in Kenya owing to the government's directives to explore ways of cashless payments to reduce the risk of spreading the virus.

A 2021 report by Visa estimated that 71 per cent of businesses in Kenya use cash payments, while the preference for this mode by their customers stood at 22 per cent. The report showed that high usage of digital payments, including mobile money transfer, card payment, contactless cards, and bank transfers was concentrated in food, beverage, and entertainment places, tours and accommodation, agriculture, transport and delivery, and professional services.

Despite this proliferation of cashless transactions, cash is still predominantly king with some segments of the population still finding the current payment systems hard to access, hard to use or beyond their means in terms of access and relevance.

To support Kenya's ambition of becoming a digital, cash-lite and 24/7 economy, the digital financial sector has a key role to play.

First, there is a need to upscale digital transformation to meet customers demand for seamless transactions. Digital transformation is not only about using modern equipment and software but also about revising approaches to management, communications, and corporate culture. Therefore,

It is important, especially of financial institutions, to rethink customer experience which influences digital transformation by automating and personalising the entire customer journey to ensure client retention, satisfaction, and business sustainability. It may mean revising the operating model, creating new directions, and uniting into a partner ecosystem that will take service to a fundamentally new level.

Second, we should install a strong data security infrastructure. A thriving cashless economy requires trust in financial service providers, confidence to use financial products, tailored product design, and a strong and enforced consumer protection framework. To build this confidence, financial institutions have to ensure that consumers' right have their privacy, data and identity protected in financial transactions.

This also involves targeted and proportional regulation to strengthen confidence in electronic payments and enforce financial inclusion. Financial institutions like Family Bank are contributing to this by heavily investing in digitisation and automation of services while ensuring that customer data protection is adhered.

Finally, the East Africa Banking industry trends report 2021-2022 by Deloitte Africa urges financial institutions to prioritise cyber security and embed it in organisational culture. This is because a surge in cashless transactions has given rise to complex cyber-crime cases including vulnerability to hacking and data breaches.

Financial institutions have a unique opportunity to take a proactive approach to customer education on cybersecurity. This can be done through the development of consumer education strategies and campaigns that are aligned to the business goals.

The Kenya Bankers Association, for instance, conducts an annual card and online safety awareness campaign, Kaa Chonjo, which seeks to contribute to alleviating fraud in the financial services sector and empowering consumers with information on secure use of cashless transactions. This not only builds stronger relationships but also provides an opportunity to enhance anti-fraud efforts. Human error is the biggest problem in cybersecurity.

With the National Payment Strategy 2022-2025 by CBK aiming to have a secure, fast, efficient and collaborative payments system that supports financial inclusion and innovations that benefit Kenyans, the digital financial services sector has a key role to play to accelerate the journey to a cash-lite society.