Will the fresh drive help achieve much-desired cashless economy?

Financial sector players last week launched a fresh national initiative to promote the uptake of a cashless economy.
 John Rwangombwa,
Governor, National Bank of Rwanda
John Rwangombwa, Governor, National Bank of Rwanda

Financial sector players last week launched a fresh national initiative to promote the uptake of a cashless economy.

This is the second major attempt by stakeholders to push through an effort toward a cashless economy since 2015.

In the inaugural campaign, the ambitions were to be driven largely by debit cards to pay for goods and services.

This required merchants and traders to have point of sale machines which at the time had all taxes scrapped off to bring down their cost.

On average, a point of sale machine costs between $200 and $300, which is still expensive for a large section of merchants.

The campaign did not, however, achieve the desired impacts and targets owing to a number of factors.

Among them includes the low penetration and use of debit cards in the market. At the time of the launch, there were about 654,000 cards in the country. The number has since grown to about 872,000 as of June.

However, only a few of these cards are used for cashless transactions as most are used for ATM withdrawals.

The infrastructure required to use the debit cards has also severally been described as inadequate with the number of point of sale machines (terminals) currently standing at 2031.

The willingness of merchants and business people to use the devices was also described as wanting.

Across the city, businesses prefer cash as opposed to the terminals largely due to the additional costs tied to the use of the terminals.

Merchants are charged about 2.5 per cent of the total value of the transaction, which most would rather not incur.

With that, it became common for most traders to stop clients from paying using debit cards by claiming that the terminals are faulty.

An attendant at a Kigali based gas station last week told The New Times that he works under instructions to have a preference for cash when dealing with clients and avoid payments via the terminals.

As of June this year, a majority of 86 per cent of all the POS machines are in the city, pointing to their low penetration.

Some stakeholders say the first campaign might have had limited impact as there is still low understanding on the need for cashless transactions among merchants.

Most view it as an additional and unnecessary expenditure with little impact on operations.

In an interview, central bank governor John Rwangombwa said the new campaign, launched last week, aims at addressing the challenges identified in previous campaigns.

The campaign will, among other aspects, focus on raising awareness and educating traders and citizens on the benefits of a cashless system.

“We are going to conduct this campaign across all the sectors in the country, all the chambers will be meeting and examining different challenges to understand what is hindering them from taking up non-cash payment means. We will go upcountry and engage everyone. We want people to understand the benefits and the cost of using cash,” he said.

For instance, from the campaign, business people will understand how much they can save by turning to cashless payments, Rwangombwa said.

A study showed that the cash handling accounts for about 2 per cent of cost of sales daily which goes up to about 4 per cent when factoring in aspects such as risks of theft and counterfeits.

“Even with the 2.5 per cent that the traders were paying, when you look at the cost of cash handling itself, the study done by international experts show that it’s about 2 per cent of sales per day. That is just cash handling, when you add the risks of stealing the money, counterfeits, it goes up to about 4 per cent. If traders would embrace this, they would save save costs despite the small fee,” Rwangombwa said.

Reducing cost

Cashless transaction costs can also be brought down as stakeholders seek to promote use of QR codes to complement POS machines.

The QR codes can be scanned to make payments from smart phones which is likely to promote uptake as the mobile phone penetration is significantly high at about 80 per cent.

According to a concept note of the campaign, there will be efforts to encourage low cost solutions and new business models that can accelerate payment adoption.

“This could include non-capex models like standardised interoperable QR code acceptance or audio QR codes or business models that offer merchant working capital loans based on digital history or evidence of accounts receivables,” the note reads in part.

Industry experts say that banks can do more towards the efforts by introducing innovations to encourage payments such as creating options for their clients to pay for goods and services from their bank accounts on their mobile phones.

In a recent talkshow on Rwanda Television, Maurice Toroitich, the chief executive of BPR Bank, said there is a deliberate effort by local players to create such platforms.

He said there has been investment by financial sector players to be able to make settlements without the exchange of cash.

Toroitich also noted that enterprises’ hesitance to embrace cashless payment solutions is likely to put them out of business due the inconvenience they continue to expose their clients to.

Other concerns on the issue include ability of banks to have ‘push and pull systems’ to allow clients access and deposit money from their mobile money accounts, hence necessitating need to use cash.

MTN Rwanda chief executive Bart Hofker told The New Times that both banks and telecoms have an important role in the process.

“The focus is more on mobile because the penetration of phones in Rwanda is at 70 per cent while bank accounts is at about 28 per cent. If you want to reach the masses, then mobile is the key,” he said.

There have, however, been concerns on mobile money as an avenue to pay for goods and services due to withdrawal fees.

Hofker said that on merchants’ acceptance on the mode of payments, everyone ought to be able to use mobile to pay at local retail stores.

However, he noted that this can be fast tracked if suppliers and retailers embraced mobile money collection because it will consequently increase the number of retail locations that have a mobile wallet and are able to accept mobile payments from citizens.

“MTN Rwanda is also currently reintroducing Tap and Pay on a large scale. This increases customer experience in shops in terms of speed and convenience. We understand it is not easy for merchants to use many different POS machines and we would welcome cooperation with banks to integrate MTN Tap and Pay into existing banking POS terminals,” he added.

To increase the ‘push and pull’ system between banks and telecoms, he said that if banks do not charge a fee, they (MTN) will not charge either.