M-Pesa virtual Visa cards undercut Kenya’s commercial banks with lower exchange rates in the race to gain a larger share of the country’s cross-border payment market.
The virtual card, originally available to more than 30 million M-Pesa users in Kenya, charges Sh121.92 to the dollar for payments across Visa’s 61 million merchants.
Bankers will demand more shillings while using their Visa card for dollar-based payment, a signal that Safaricom is betting on pricing to gain market share in a business segment that has been dominated by lenders.
Payments in foreign currency via KCB Group’s payment cards are based on Sh128.10 against the dollar, DTB Group (Sh128), Cooperative Bank (Sh127.95), NCBA Group (Sh126.80), Equity (Sh126), Standard Chartered (Sh125). 37) and Sh125 for Absa.
M-Pesa overtook the voice to become the largest earnings for Safaricom, underscoring the growth of the financial service.
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Revenue from mobile money services increased to 107.7 billion sh. supported by the return for the collection of transactions below 1,000 sh. and improved business activity, which beat the voice as the company’s top earner.
The financial service now accounts for 38.3 percent of total revenue of 281 billion sh., Ahead of voice’s contribution of 31.2 percent during the review period.
Safaricom has created applications to offer additional services on M-Pesa such as investments and insurance, the rollout of which is awaiting regulatory approval.
Grocery payments through M-Pesa have grown, especially under Covid-19, as consumers increasingly make cashless transactions to avoid becoming infected with the highly contagious virus.
Launched in June 2013, Lipa na M-Pesa has aggressively recruited merchants across the country, including large and small businesses such as gas stations, supermarkets, corner stores and eateries.
This has led it to overtake card payments – driven by banks and their global payment technology partners such as Visa and Mastercard – which have largely focused on serving formal retailers.
Active Lipa na M-Pesa merchants grew by 72.8 percent to 387,000, underscoring the impact of increased preference for cashless transactions.
This means that the M-Pesa exchange rate is cheaper by between Sh3.08 and Sh6.18 compared to those of Kenya’s best banks struggling to conquer some of Africa’s $ 40 billion a year subscription market.
The exchange rate has become a major problem in recent years after Kenya, after strong dollar demand from various sectors, exceeded thin inflows, pulling the shilling to record lows.
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The shilling yesterday closed trading in Sh117.90 units against the dollar compared to Sh114.95 in April and Sh107.85 a year ago, making imports and foreign exchange-based payments more expensive.
“Cooperation with Visa has enabled us to expand a very affordable Forex exchange rate of only 3.5 percent, which is one of the lowest on the market, making foreign exchange transactions more affordable for more than 30 million M -PESA customers in Kenya, “said M-Pesa Africa’s CEO Sitoyo Lopokoiyit.
“The M-Pesa Virtual Card seeks to build on convenience by providing customers with an extremely affordable and secure way to make international online payments to millions of companies like Netflix, Google, Spotify and many more directly from a customer’s balance.” Sir. Lopokoiyit told Business Daily.
Commercial banks charge a commission of between four percent and seven percent on top of Visa’s exchange rate, which was quoted at Sh118 yesterday 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 foreign merchants like Amazon and Alibaba from their mobile phones without credit cards or accounts with processors like PayPal. The virtual card is also aimed at the fast-growing subscription markets in Africa for services such as Netflix and Spotify.
The virtual map was originally available to more than 30 million M-Pesa users in Kenya and has been rolled out to Tanzania, where tests are underway, Mozambique, Congo, Lesotho and Ghana in April 2023.
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Transactions are subject to the M-Pesa platform’s limits of Sh150,000 for a single transaction and a daily limit of Sh300,000. Users will be able to use the virtual card while traveling abroad.
Launched by Safaricom in 2007, M-Pesa allows users to transfer cash, make payments for goods and services, and save and borrow through partnerships with local lenders.
Previous attempts to integrate it with the global payment system include a 2018 agreement 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 of M-Pesa revenue last year, although its share of sales remains relatively small.