Cashless transactions in East African rose sharply last year from increased use of plastic cards and mobile money to pay for goods and services, new data shows.

Regulators, businesses and consumers have been pushing for alternative ways to make payments — including cards, mobile phones and electronic fund transfers.

This has greatly changed the way business is done in the region. People are shifting to point of sale payments and mobile phones to repay loans, settle utility bills, and even pay for school fees.

ALSO READ: Mobile money slowly turning East Africa into cashless society

This year, regulators in the region are planning to link the payment systems.

Recent data from the National Bank of Rwanda and Central Bank of Kenya shows a sharp increase in the use of electronic platforms by consumers as well as businesses.

The CBK data shows that in Kenya, the value of card transactions rose by 74.74 per cent to Ksh1.009 trillion ($11.74 billion) in the 12 months ended December last year, compared with Ksh577.85 billion ($6.71 billion) transacted for the period ended December 2011.

Over the same period, the value of transactions through mobile phones, which are mostly used by retailers, hit Ksh1.54 trillion ($17.96 billion), a 32.13 per cent increase from the previous year’s Ksh1.16 trillion ($13.59 billion).

George Wainaina, the managing director of Kenswitch, a shared payments platform, said the number of consumers using cards to make purchases has risen, as evidenced by the increased value of transactions through point-of-sale (POS) machines.

“Consumers are increasing their use of cards due to the convenience and a great marketing push by the card industry in general,” said Mr Wainaina. 

He said the banking industry has continued to invest in mobile terminals where the POS machine is brought to the cardholder, thereby reducing the risk of the card being skimmed.

Skimming is the theft of credit card information used in an otherwise legitimate transaction.

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In Uganda, retailers are assuring consumers of the security of using cards for shopping.

Banks, which issue most of the cards in that country, are moving to the EMV Chip and Pin standard — technologies which make it harder to skim cards — as a counter to fraud.

Dr Adam Mugume, executive director for research at the Bank of Uganda said the enhanced security of electronic cards will help reduce the high incidences of fraud.

Businesses are also picking up on cashless transactions.

In Kenya, transactions on the Real Time Gross Settlement (RTGS) system which is used for transactions above Ksh1 million ($11,628) totalled Ksh19.87 trillion ($231.15 billion), a marginal drop from the Ksh21.89 trillion ($254.57 billion) in 2011.

The National Bank of Rwanda said that their RTGS system is now linked to the Central Securities Depository that operates a settlement cycle of T+2 — three days to transfer shares including the day of the transaction — making it the fastest settlement cycle for the stock exchange in the region.

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“The value of transactions using international Visa cards is now in excess of $3 million as e-commerce, mobile payments and e-banking take root,” said the National Bank of Rwanda (BNR) in its first monetary policy and financial stability statement for 2013.

The BNR said 10 banks in the country are currently Visa members; three are principal members, three associate members and four are cash disbursement members.

READ: Visa and BNR forge ahead as card system slowly picks

The banks have also introduced three other international brands — Mastercard, China Union Pay and Diners Club — to the Rwandan market, increasing the competition for the card-users market.

Last week, Visa International announced it will soon introduce a new phone technology in the region, which enables payments to be made by swiping a phone just like using a card.

This follows Mastercard’s initiative with Kenya’s Equity Bank to launch PayPass, which uses near field technology.

PayPass enables check-out at tills at a rate 25 per cent faster than swiping cards.

“We will use available tools like the mobile phones to trigger more usage of points of sales and access to financial services,” said Jabu Basopo, Visa’s area country manager for sub-Saharan Africa.

Visa has launched similar technology in India and South Africa, and it aims to grow the number of its card users by one million in the next year.

Mr Basopo said card users in Uganda and Tanzania have grown to about one million in each country, up from 800,000 and 600,000 respectively.

“Improving telecommunications ensures that the POS terminals are always available, unlike in past years where dial-up fixed lines were used. More merchants are accepting cards as they realise the cost of having and handling cash is expensive to a business, and so they would rather transact electronically,” said Mr Wainaina of Kenswitch.

Apart from the improvements in infrastructure that allow card processors to set up in the region, regulators are also seeking to lessen the time taken for cross-border transactions.

READ: Physical cash hampering regional trade

After linking its integrated payments system to Comesa’s regional system last October, BNR has said it will link to the East African region this year.

Reported by Scola Kamau, David Mugwe and Bernard Busuulwa