By KEPHA MUIRURI

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Dominance of cash, especially for small value transaction, continues to stand in the way of Safaricom Ethiopia’s payments business using its M-Pesa platform, says the telco.

“Banking penetration in urban areas is relatively high but 99 percent of small value transactions are in cash,” Safaricom Plc, which is the majority owner of the Ethiopian business, told investors of the subsidiary’s performance last month.

Safaricom Ethiopia launched the mobile money service on August 15, 2023 and had acquired 1.1 million customers at the end of September. In that period, the value of transactions reached Ksh43.7 billion ($29.13 million) while active merchants stood at 12,400. The telco earned Ksh7.2 million ($48,000) from the mobile money platform.

According to a 2021 report by the World Bank on financial inclusion and digital payments, cash in Ethiopia is a dominant payment method, a sharp contrast to other markets in the region, including Kenya, where non-cash payments have gotten a foothold.

Read: Safaricom launches M-Pesa in Ethiopia amid civil unrest

“Most people still rely on cash to pay utility bills and receive payments. Almost all adults at 99 percent pay utility bills with cash, compared to 12 percent of people in Kenya and 59 percent in the region as a whole,” the report notes.

Further, Safaricom is expected to deal with lower volumes of transfers between cities/urban areas and rural areas/villages.

“The social construct is less geared to town-to-village money transfer,” Safaricom added.

On payments, Safaricom will be grappling with a low penetration of financial services where only 11 percent of the population has accessed a loan from a financial institution.

According to the World Bank, the majority of Ethiopians have failed to open bank accounts, giving insufficient funds as the reason for staying unbanked, a suggestion that the population believe that financial services are not for the poor.

Ethiopians rely more on informal institutions to meet their financial needs.

The World Bank report, for example, shows that although 62 percent of Ethiopians reported saving money, only 26 percent saved formally at financial institutions while 38 percent saved with a person outside the family or at an informal savings club.

Ethiopians are also more likely to borrow from family or friends or from a saving club than from a bank.

These are among the challenges Safaricom’s M-Pesa has to contend with as it seeks to grow payments and financial services in the market.

Read: M-Pesa share in Safaricom revenue deepens

Safaricom commenced M-Pesa operations in Ethiopia last year with the operator expecting uptake to be driven first by consumer payments before scaling to merchant payments and financial services such as micro-credit.

The telco expects to leverage partnerships including integration with local banks, shopping outlets including supermarkets and international money transfer services.