Kenya's mobile payments market is experiencing a significant shift as M-Pesa, the dominant player, faces increased competition from rivals like Airtel Money and Pesalink. According to data from the Communications Authority of Kenya (CA) and the Central Bank of Kenya (CBK), M-Pesa's market share has begun to decline, signaling a softening of its once-absolute dominance.

The decline in M-Pesa's market share can be attributed to the rising transaction charges and increased scrutiny by government authorities, including the Kenya Revenue Authority (KRA). Small shop operators have started to shift towards cash transactions, fearing that the KRA could use mobile money transactions to compel them to pay more taxes. As a result, cash now accounts for 80% of daily transactions in Kenya, according to Financial Sector Deepening Kenya.

Airtel Money, in particular, has been gaining ground, with its market share growing from 2.8% to 6.6% in the 12 months to June 2024. The platform's lower transaction fees and enhanced mobile money interoperability have made it an attractive alternative for consumers seeking to conduct small cash transactions without relying on M-Pesa. Pesalink, a platform that allows real-time transfers to 39 commercial banks, has also been gaining traction as a challenger to M-Pesa's dominance.

Despite the decline in its market share, M-Pesa remains the leading mobile payment platform in Kenya, with a market share of 93.4%. The platform, along with Airtel Money, has become indispensable for Kenya's unbanked population, particularly in rural areas. Neighbourhood shops and small businesses are increasingly using both platforms for accepting payments, handling supplier transactions, and paying utility bills for services like water and electricity.

The growth of mobile payments in Kenya has been remarkable, with Safaricom and Airtel processing over 25 billion transactions with an estimated value surpassing $309.4 billion (KES40 trillion) between January and October 2024. However, traditional methods like cheques and the Real-Time Gross Payment System (RTGS) still play a crucial role in large transactions, with cheques valued at $15.4 billion (KES2 trillion) cleared and RTGS transactions accounting for $21.6 billion (KES2.8 trillion) during the same period.

The use of cheques is, however, on the decline, with the value of cheques dropping 15.1% in June 2024, almost matching the Covid-19 period when businesses remained closed following anti-government protests. Card transactions, which include POS payments and ATM withdrawals, have also been sluggish, amounting to $355.8 million (KES 46 billion) in the 10 months leading to October 2024. Debit cards remain the most popular cards in the country, while credit card penetration stands at 5.6%.

The shift in Kenya's mobile payments landscape has significant implications for the country's financial sector. As competition increases, mobile payment platforms will need to innovate and adapt to changing consumer needs to remain relevant. The decline in M-Pesa's dominance also presents opportunities for new players to enter the market, potentially leading to increased financial inclusion and economic growth.

In conclusion, the Kenyan mobile payments market is undergoing a significant transformation, driven by rising competition and changing consumer preferences. As the market continues to evolve, it will be important to monitor the impact of these changes on the country's financial sector and the broader economy.