ATMs reawaken as digital payment taxes bite

Automatic Teller Machines (ATMs) are back in vogue as Kenyans withdraw cash to avoid aggressive taxation measures on government-monitored mobile money. Already, the Kenya Revenue Authority (KRA) has announced plans to track mobile money for a 16 percent value-added tax (VAT) on sales, as well as the 20 percent excise duty charged on transactions, as part of the state’s efforts to raise Kes3 trillion revenue by June 2024.

This has led to retailers rejecting mobile money, while customers are shifting away from digital transactions and currently withdrawing cash from ATMs.

According to KCB Group’s third-quarter results, Kes303 billion was withdrawn from ATMs, reflecting a 43 percent increase, while Kes137 billion was transacted through agency banking, marking a 99 percent growth.

At Equity Bank, although the number of transactions via ATMs decreased by 9 percent, the value of money withdrawn from automated machines surged from Kes246 billion to Kes287.9 billion.

KCB Group CEO Paul Russo expressed his surprise at the resurgence of ATMs after years of decline. “For a long time, ATMs were on the decline; it was negative. This is an interesting scenario. This is the first results we are reporting that ATMs are up. It is telling you people are moving from somewhere else to take their money and do whatever with their money. It is an interesting development, this one,” Mr. Russo said.

Mobile money transactions were launched in 2007 as a means of easing the sending and receiving of money. At that time, sending money to family was a laborious process that took so long that the primary method of transferring cash was through a relative who would have to wait for the convenience of when a relative would travel.

Digital payments

In emergency cases, money orders were sent, but even these had a problem at the last mile since most rural areas were distant from towns and trading centers that had Posta or a financial institution. M-PESA came in to address this issue, making it cheaper, faster, and more effective to give directly to our dependents.

Dr. David Ferrand, Financial Sector Deepening (FSD) Kenya’s director from 2005 until June 2019, gave a lecture in November 2019 where he pointed out the origins of M-PESA as a support framework to enable Kenyans to support their families, a financial system focused on solving real-world problems.

“M-PESA started off by innovating solutions to problems facing their customers. For M-PESA, it was initially to enable Kenyans working away from their families, typically in urban areas, to get money back to support their relatives in the rural areas,” he said.

The mobile money revolution then leveraged a fast-spreading mobile telephone communications network to develop a low-cost payments solution that quickly went viral, with nearly 8 in 10 adults owning a mobile money account in just over a decade since its inception.

FSD, in the 2019 Annual report, notes that since then, aside from in-country remittances, digital payments are beginning to make inroads into key transaction use cases such as paying monthly bills, receiving salaries, paying school fees, and transferring money to the government through formal accounts rather than cash.

Launched in Kenya in 2007 as a peer-to-peer cash-transfer service, M-PESA now offers payments, credit, international remittances, and business analysis in other African countries such as the Democratic Republic of Congo, Egypt, Ghana, Lesotho, Mozambique, and Tanzania, serving over 50 million customers.

The use of M-PESA has also significantly encouraged the steady rise in the use of mobile banking platforms, preferred by 67.8 percent of bank customers, according to the 2022 customer satisfaction survey by the Kenya Bankers Association.

Mobile money gained momentum when the Covid-19 pandemic broke out, and Kenyans were conscious of handling physical notes amid fears of the virus spread. Additionally, Kenyans were incentivized to go digital when the Central Bank of Kenya announced that all mobile money transactions below Kes1000 would be free.

Read also: Lipstick effect: Kenyans wearing makeup to face tough times

Cash economy

The regulator also declared that transactions between bank accounts and mobile wallets would be free of charge. By October 2020, Central Bank data showed up to 113 million transactions worth Kes800 billion monthly as Kenyans transacted over half the value of the economy on mobile phones.

M-PESA crossed 30 million active customers in March last year, and more than 600,000 merchants received payments through Lipa Na M-PESA, its business-specific payment solution, in the financial year ending March 2023. This sharp growth drew the government’s attention, which began viewing mobile money transactions as an avenue for tax collection.

Just two months into his presidency, William Ruto noted that there are only 7 million people with KRA pin numbers, in an economy where Safaricom’s M-PESA has 30 million registered customers transacting billions daily.

Critics, however, view the surveillance of digital financial footprints as an invasion of privacy and are uncomfortable with the government monitoring every move, potentially signaling a return to a cash economy. While taxation measures may have accelerated a shift away from mobile money payments, rising transaction charges have also been a major concern for small businesses.

Merchants using Lipa Na M-PESA are charged up to 0.55 percent of the value of each transaction under the ‘Buy Goods’ option.

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