Over the past decade, the global banking industry has been undergoing a significant transformation, driven primarily by technological innovations. Kenya, a leader in mobile money services, has witnessed this change firsthand, with the Central Bank of Kenya’s (CBK) Financial Sector Stability Report 2023 highlighting a pivotal shift in how Kenyans conduct financial transactions. According to the report, the number of Automated Teller Machines (ATMs) in the country saw a notable decrease in 2023, a development linked to the growing preference for mobile and internet banking. This article explores the factors behind the decline in ATM usage and the rise of mobile and internet banking, outlining the impacts and potential future implications for Kenya’s financial sector.
A Decline in ATMs
The CBK report revealed that the number of ATMs in Kenya dropped from 2,301 in December 2022 to 2,082 by December 2023, a reduction of nearly 10%. This shift marks a significant change from a period when ATMs were an essential part of banking infrastructure, offering convenience to customers who needed to withdraw cash, check their balances, or deposit funds. ATMs were seen as a key innovation that brought financial services closer to customers, minimizing the need to visit physical bank branches. However, the rise of mobile and internet banking has gradually made ATMs less central to the way Kenyans manage their finances.
Kenya has long been at the forefront of mobile financial services, with platforms such as M-Pesa revolutionizing how people access, transfer, and store money. The growing accessibility of mobile banking services has reduced the dependency on physical infrastructure like ATMs and brick-and-mortar branches. As a result, many banks are scaling back their investments in traditional banking facilities, including ATMs, and directing their resources towards enhancing digital platforms.
The Growth of Mobile and Internet Banking
While ATMs are on the decline, the number of mobile and internet banking users in Kenya has surged. The CBK report noted that about 809,000 new mobile money users were registered in the twelve months leading up to December 2023, reflecting the continued adoption of mobile financial services. This growth, though slower than in previous years, remains significant in a country where mobile money has fundamentally transformed the banking sector.
As of December 2023, the number of active mobile money users, those who completed at least one transaction in the previous 30 days, stood at 31.4 million. This marked a slight decline from 32.9 million active users in December 2022. Despite this drop, mobile money continues to dominate Kenya’s retail payment system, which includes other methods such as credit and debit cards, point-of-sale (POS) devices, and the Automated Clearing House (ACH), which facilitates electronic funds transfers.
Kenya’s retail payment landscape has seen the rapid adoption of mobile money over the last decade, driven by its convenience, accessibility, and ability to cater to both rural and urban populations. This is particularly evident in the country’s informal economy, where many people lack access to traditional banking services but rely heavily on mobile money to send and receive payments, pay bills, and purchase goods and services. For many, mobile banking provides an easier, faster, and more secure alternative to using ATMs or visiting bank branches.
CBK’s Role in Enhancing Mobile Money Services
In response to the increasing demand for mobile money services, the CBK has implemented several reforms to accommodate larger transactions and enhance the functionality of mobile wallets. In 2023, the CBK raised the limits for mobile money transactions, reflecting the growing reliance on mobile money for larger purchases and transfers. Initially, the mobile money transaction limit was set at KSh 70,000, but in 2023, this was raised to KSh 150,000 per transaction. Additionally, the daily limit for mobile money transactions was increased to KSh 300,000, allowing users to conduct more extensive financial activities via mobile platforms.
The CBK also adjusted the size of mobile money wallets, which were previously capped at KSh 300,000. As of 2023, the mobile wallet size has been increased to KSh 500,000, giving customers more flexibility to store higher amounts of money in their mobile accounts. These changes have allowed mobile money platforms to better serve individuals and businesses who use mobile banking for a wide range of transactions, from small purchases to substantial business payments.
Payment service providers, including mobile money platforms, Pesalink, cards, and electronic funds transfer systems, also responded by increasing the daily transaction limits. For example, the daily mobile money transaction limit was raised from KSh 150,000 to KSh 250,000. This allowed users to complete higher-value transactions, further boosting the utility of mobile money services.
The Rise of Mobile Money in Retail Payments
Mobile money has become an integral part of Kenya’s retail payments system, serving millions of customers who use their mobile devices for everyday transactions. According to the CBK report, mobile money transactions dominate the retail payment landscape, accounting for a significant share of both personal and business financial activities. This trend is expected to continue, as mobile phones become even more widespread and mobile money services expand to cover a wider array of financial needs.
Mobile money’s success in Kenya can be attributed to several factors. First, the convenience of mobile money is unmatched, enabling users to conduct transactions from anywhere, at any time. This is especially important in a country with a vast rural population, where physical access to banks and ATMs can be limited. Second, the affordability of mobile money services, with relatively low transaction fees, has made them an attractive alternative to traditional banking. Finally, the high level of trust that Kenyans have in mobile money platforms, particularly M-Pesa, has fueled the adoption and integration of mobile payments into everyday life.
The Future of Banking in Kenya
The continued rise of mobile and internet banking in Kenya signals a broader trend towards digital financial services, which is likely to shape the future of banking in the country. With more Kenyans opting for mobile banking, financial institutions may continue to downsize their physical infrastructure, including ATMs and branches, as they invest more heavily in digital solutions. Banks are also likely to enhance their mobile and internet banking platforms to provide a wider range of services, improve security, and increase customer satisfaction.
One potential outcome of this shift is the growing importance of fintech companies, which have already made significant inroads in Kenya’s financial sector. These firms are increasingly partnering with traditional banks to offer innovative products and services that cater to the digital needs of today’s customers. This collaboration between fintech and banks could lead to further innovations in mobile and internet banking, providing more personalized and efficient financial solutions for Kenyans.
However, there are challenges to this digital shift. For instance, there is a need to ensure that rural populations, especially those without reliable internet access or digital literacy, are not left behind. Additionally, cybersecurity concerns may pose risks to the growing number of mobile and internet banking users. The CBK, banks, and fintech firms will need to work together to address these issues and ensure that Kenya’s banking sector remains inclusive and secure.
Conclusion
The decline of ATMs in Kenya reflects a broader shift towards mobile and internet banking, driven by technological advancements and changing customer preferences. As more Kenyans embrace mobile money and online banking, traditional banking infrastructure is becoming less essential. The CBK’s efforts to raise mobile money transaction limits and enhance mobile wallet capacities are paving the way for a more digitally-focused financial sector. While challenges remain, the future of banking in Kenya is undeniably digital, with mobile and internet banking set to play an even more central role in the country’s economy.
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