Visa, Mastercard Eye Kenya as Use of Plastic Cards Rises

Mergers, Acquisitions and Financial Results

Use of plastic cards to purchase goods and services in East Africa is on the rise, as consumers shift from cash and cheques, latest statistics show. However, the value of the transactions is way below that of leading economies in Africa.

For example, Botswana has 700,000 Visa cards but transactions are valued at $650 million annually, compared with Kenya's three million plastic cards with transactions worth $350 million over the same period. The increased adoption of plastic cards has seen Visa Inc and MasterCard Inc - the world's largest credit card networks - turn to East Africa as a key engine for growth.

Visa and MasterCard are set to open offices in Nairobi in the second half of 2011 to tap into the regional market. Kenya leads the region in the use of plastic cards, with over three million cards in use. Rwanda and Burundi have about 5,000 cards in use, said Gerald Hawkins, Visa group manager, Africa. He added that Tanzania and Uganda have 300,000 and 700,000 cards, respectively.

Analysts said besides the safety and convenience of cards, their uptake has also been helped by reward schemes, such as discounts that card providers offer to push up their use. Demand for cards has been on the rise as consumers seek to avoid the inconveniences and risks of cash-based transactions - including fraud, robbery and violence. Visa officials hope that setting up shop in Kenya, the region's biggest market, will enable them to consolidate their business.

"The Kenyan hub is two-hour flight from many surrounding markets. We will work directly with partner banks and the government on a daily basis within this time zone," said Hawkins.

Global Payments Solutions firm MasterCard also intends to set up base in the country, denoting stiff competition ahead in the plastic cards business, according to the Central Bank.

"Master Card has also applied to set up base in Kenya; there is a growing demand for the cards market," said Stephen Mwaura, CBK's head of national payment system.

He added that the market was growing at a slower pace than that of other solutions like mobile money transfer, introduced in 2007 - long after plastic cards were introduced to Kenya in the 1990s.

"There are 500,000 transactions through Visa cards every day, compared with a million mobile money transactions a day," he said.

The CBK said that in Kenya, total credit and debit cards stood at 55,235 and 7.1 million, respectively, in October last year, up from 61,050 and 6.2 million in the same period the previous year.

The total value of transactions made using plastic cards -- including credit, debit, and pre-paid cards (voucher cards) -- stood at Ksh115.1 billion (about $1.4 billion) in the three months to September 2010, compared with Ksh76.6 billion ($950 million) in a similar period a year earlier.

Cash, however, remains the main method of payment in East Africa, a fact attributed to a strong aversion for debt and an inadequate point of sale network.

While automated teller machines in Kenya have increased from 1,756 in 2009 to 2,037 in 2010, ATM cards have almost tripled, from 422,785 to 1.3 million over the same period, according to the CBK survey. Point-of-sale (POS) machines over the same period increased from 16,619 to 19,279. "The terminals should be increased by a factor of two or three," Hawkins said.

Kenya has 9,000-Visa POS machines; Tanzania and Uganda have 450 each, while Rwanda and Burundi have 100 and five outlets, respectively, the officials said. Meanwhile, financial institutions hope to increase their cards' customer base in the country.

NIC Bank, one of Visa's partners, says uptake of plastic cards will rise with increased exposure to technology and cashless cultures dawn. "We hope to double our credit card customers in two years," says James Wainaina, director of personal banking, during the launch of the bank's Visa Gold Credit Card in Nairobi.