A Deep Dive of the Digital Payments Market In Kenya

Introduction

Kenya has firmly established itself as a pivotal hub for technological innovation across Africa, earning its capital, Nairobi, the moniker “Silicon Savannah”. More than symbolic, this designation that reflects significant investment and strategic recognition from global players. For instance, in 2022, VISA launched its first African innovation studio in Nairobi, placing it alongside established global tech and financial centers such as London, Singapore, and San Francisco.

As of 2023, the nation was home to 102 fintech companies, representing 15% of Africa’s total fintech startups - the third-largest fintech market on the continent, trailing only Nigeria (32% market share) and South Africa (20.6% market share).

In addition, it ranks second in Africa in terms of financial inclusion at 84% trailing only South Africa’s 85%. This is predominantly a consequence of the widespread adoption of mobile money services. More than 80% of adults rely on mobile money transfers, a usage rate nearly twice as high as that of traditional banks.

The digital payments market in Kenya is projected to reach a value of $14.54 billion by 2028, expanding at a Compound Annual Growth Rate (CAGR) of 14.1% between 2024 and 2028.

Kenya’s payments ecosystem is widely recognized as one of Africa’s most advanced and inclusive, a distinction directly attributable to its pioneering mobile money innovation and a highly digitally literate population.

Mobile Money

Mobile money services are overwhelmingly prevalent, with over 80% of Kenyan adults actively utilizing them for money transfers. This usage rate is nearly double that of traditional bank accounts.

M-Pesa, launched in 2007, is largely responsible for the high financial inclusion rate in Kenya. It empowered previously unbanked individuals to conduct essential financial transactions - sending, receiving, depositing, and withdrawing money across the country - using only mobile phones.

The sheer scale of M-Pesa’s operations is profound: transactions in Kenya amount to approximately $246 billion per year, significantly surpassing the combined average of $65 billion for the top two Kenyan banks. By 2023, the annual value of M-Pesa transactions reached KES 7.95 trillion ($61bn), equivalent to ~55% of Kenya’s GDP.

Beyond simple transfers, M-Pesa has evolved into a comprehensive financial ecosystem, offering a wide array of services including bill payments (Lipa na M-Pesa), savings, loans and overdrafts (M-Shwari, Fuliza), international remittances, and merchant payments. It processes over 180 million transactions daily within Kenya.

The core of M-Pesa’s success lies not solely in its technological innovation, but in its ease of entry, use, and network effects. At the time of launch, it worked completely offline via USSD, which was crucial at a time when less than 10% of the population owned smartphones.

Joining the network was also incredibly simple - all one required was a national identity card, thereby circumventing bureaucratic brick-and-mortar banks.

The societal impact of M-Pesa has been substantial: research from the Massachusetts Institute of Technology and Georgetown University indicates that M-Pesa has lifted an estimated 194,000 Kenyan households out of extreme poverty, primarily by enhancing financial resilience and empowering women economically. While M-Pesa maintains clear dominance, other mobile money platforms, such as Airtel Money and Telkom’s T-Kash, also operate within the market.

Card-Based Payments

Bank cards began to see widespread global adoption in the mid-20th century, but lack of infrastructure, high transaction costs, and low trust in financial institutions saw their adoption in Africa lag significantly.

Mobile money innovations, pioneered by M-PESA, have seen the digital payments and card-based payments grow substantially over the years. Mobile money brought millions of Kenyans into the formal financial system, widening the base of individuals now familiar with digital transactions, creating a fertile ground for card adoption.

The overall number of card payments in Kenya has seen a massive upward trend, rising from KES 17.2 million in 2016 to KES 35.0 million in 2020, representing a Compound Annual Growth Rate (CAGR) of 19.5%. This growth was evident in specific channels, for example, the use of bank cards at point-of-sale (POS) terminals for shopping hit a record 4.4 million transactions in May 2022, a significant increase from just 676,275 transactions in August 2014, with transaction values reaching Sh20.7 billion in May 2022.

The shift towards digital payments, including both bank cards and mobile money, was further accelerated by the COVID-19 pandemic, which discouraged the handling of physical cash.

Despite these positive figures, it is important to contextualize them within the broader financial landscape. The value of card payments actually declined to a six-year low in 2024, dropping to KES 465.4 billion from KES 533.4 billion the previous year.

Consumers continue to prefer mobile money and cash for the convenience and cost-effectiveness they offer for day-to-day transactions, and are the primary drivers of growth in the digital payment market

The primary drivers of this growth in the digital payments market are mobile money and other digital wallets, as consumers continue to prefer mobile money and cash, which are often more convenient and cost-effective for everyday transactions. Future growth in card will therefore depend on carving out distinct value propositions and integrating seamlessly into the mobile-first consumer experience, rather than expecting to displace mobile money as the primary digital payment method.

In addition, Kenya is still a predominantly cash-based society. Usage of plastic cards to make purchases is still very low, even amongst those who have them. For example, within the rapidly expanding e-commerce sector, cash represents 35% of online purchases, ahead of card usage at 28%.

Debit Cards

Debit cards consistently are the most preferred payment card type in Kenya. In 2020, they accounted for 81.0% of total card payment transaction value and 86.8% of total card payment transaction volume. By May 2022, debit cards constituted as high as 98.8 percent of card transactions at point-of-sale terminals.

In the period between 2016 and 2020, they saw healthy growth, registering a CAGR of 19.8% for volume and 14.6% for value. During this period the proportion of Kenyans with a bank account grew from 56% to 79%. With a debit card issued for every new bank account, they serve as a vital entrypoint for newly banked populations.

Credit Cards

The credit card market in Kenya is still considered to be in a developmental stage. Despite this, the number of credit cards in circulation recorded an 8.1% Compound Annual Growth Rate (CAGR) between 2016 and 2020, increasing from 234,578 to 320,203.

The number of credit cards in circulation recorded an 8.1% Compound Annual Growth Rate (CAGR) between 2016 and 2024, increasing from 234,578 to 320,203. This growth has been primarily supported by commercial banks offering credit cards as part of bundled packages, often including value-added features such as rewards and discounts.

The slower growth and declining ATM usage for credit cards, suggests that their adoption is tied to factors beyond basic financial inclusion, such as consumer creditworthiness, income levels, and a growing understanding of debt products, or perhaps a potential shift in how credit cards are utilized. Banks in Kenya are particularly known to limit issuance of credit cards to high net-worth individuals. As noted by industry observers (Mwenda, 2022), this contributes to their slower adoption compared to debit cards.

Alternatively, consumers may be increasingly using them for online purchases, or they might be reducing cash advances due to associated fees or the availability of other digital cash access methods like mobile money.

This implies that the expansion of the credit card market is not just about increasing access to financial services but also about the maturation of consumer credit markets, effective risk management by banks, and ongoing consumer education on the responsible and beneficial use of credit as a transactional tool, rather than solely a source of emergency cash.

Prepaid Cards

Prepaid cards are a powerful tool for financial inclusion because they do not necessarily require users to have a traditional bank account. They can be easily loaded with funds for various transactions, ranging from everyday purchases to cross-border payments.

The prepaid card market has shown robust growth, increasing at a CAGR of 16.5% during the 2019-2023 period. Projections indicate an acceleration to an 18.9% CAGR over the 2024-2028 period, with the market value expected to reach $4.12 billion by 2028 from $1.70 billion in 2023

There is an increase in the diversity of product offerings, with open loop (widely accepted), closed loop (for specific purposes like travel), and virtual prepaid cards dominating the market. Virtual prepaid cards are particularly noteworthy, as they are attractive for online transactions.

Despite their rapid growth, the transaction volumes and values for prepaid cards remain comparatively lower and exhibit more volatility. This indicates that prepaid cards are not directly competing with debit cards for primary banking access or credit cards for revolving credit. Instead, they serve specific market segments, such as the unbanked, youth, or those involved in specific payroll or social welfare programs. They also cater to particular use cases, such as controlled spending, gift cards, or secure online transactions via virtual cards.

Their growth is driven by their flexibility, accessibility, and lower barriers to entry, making them a crucial component of a broader financial inclusion strategy within Kenya’s diverse payment ecosystem.

Point-of-Sale (POS) Terminal Infrastructure

The expansion of the Point-of-Sale (POS) terminal infrastructure is a critical enabler for the growth of card-based payments in Kenya. The number of POS terminals recorded a Compound Annual Growth Rate (CAGR) of 11.9% between 2016 and 2020, increasing from 30,133 to 47,230.

Merchant volumes accepting card payments are increasing rapidly, a trend driven by rising consumer demand for convenience, and strategic collaborations with fintech companies.

Beyond consumer demand, merchants are increasingly recognizing tangible benefits. These include reduced cash management costs as funds are credited directly, simplified accounting processes, and minimized missed sales due to customers lacking physical cash. For larger businesses like supermarkets, this significantly lessens the burden and expense of handling large cash volumes, including security risks. Even smaller shops are adopting card readers to maximize sales by offering more payment options.

The consistent and steady increase in POS machines, from 17,092 in January 2010 to 48,655 by February 2025, clearly indicates a robust expansion of the physical infrastructure necessary for card acceptance. This expansion is a foundational element for the growth of card-based payments.

However, the mere presence of a POS terminal does not automatically guarantee card usage. Cards still face significant competition from mobile money and cash.

The Central Bank of Kenya has identified several bottlenecks hindering wider card adoption, including not only the high cost of POS terminals and merchant acceptance fees but also a sometimes poor POS network nationally, consumer apprehension stemming from fraud incidents, and issues with the stability of card payment systems.

While expanding POS infrastructure is a necessary condition for card payment growth, it is not sufficient on its own. Sustainable growth requires addressing these underlying financial and operational barriers.

Fintech and Payment Gateway Innovation

Kenya’s position as a technological leader in the region lays the foundation for emerging payment gateway providers, including prominent names such as PesaPal, and Cellulant. These platforms are instrumental in facilitating online and in-person payment processing for businesses, supporting a diverse range of payment methods including cards, mobile money, and bank transfers.

Beyond established players, fintech startups are actively developing specialized solutions such as merchant wallets, bulk payment tools, and innovative cross-border payment solutions, specifically designed to cater to the needs of Small and Medium-sized Enterprises (SMEs), gig workers, and remittance users.

PesaPal, a notable example, has demonstrated significant market penetration by deploying over 30,000 POS machines in Kenya, effectively controlling more than half of the country’s POS market. The company processes over a million transactions daily across its operational footprint, which spans Kenya, Uganda, Tanzania, Rwanda, and Zambia. PawaPay, launched in 2020, specializes in B2B mobile money payments across Africa, processing over 3 million transactions daily across 19 countries. Its API facilitates instant and cheaper payouts by integrating various mobile money wallets.

The following table provides a quantitative overview of Kenya’s digital payments market:

Regulatory Environment

The Central Bank of Kenya (CBK) plays a pivotal role in ensuring the stability of the payments ecosystem while actively championing financial inclusion. The CBK has proactively supported key initiatives such as open banking discussions, fostering interoperability across diverse mobile money platforms, and implementing risk-based Know Your Customer (KYC) requirements to streamline customer onboarding processes.

It is important to note that Kenya does not operate under a distinct regulatory regime specifically for fintech. Instead, fintech products and services are governed by and integrated within the existing comprehensive framework of financial laws. This pragmatic and adaptable regulatory philosophy, where the CBK integrates fintech into existing, robust financial laws, ensures stability while fostering innovation. By actively promoting interoperability and simplifying KYC, the CBK reduces friction for both users and providers, directly contributing to the high financial inclusion rates and the continued expansion of the fintech sector. This demonstrates that the regulatory environment acts as a crucial driver of growth and inclusion, rather than a restrictive force. Key legislative instruments and their corresponding regulators include:

• Central Bank of Kenya Act, Cap 491: Establishes the CBK, which is responsible for regulating and supervising various deposit-taking and non-deposit-taking financial institutions, including banks, microfinance institutions, Non-Deposit-taking Digital Credit Providers (NDCPs), and Payment Service Providers (PSPs).
• Banking Act, Cap 488: Provides for the licensing and regulation of banks engaged in “banking business” (i.e., accepting deposits and using them for lending or investment) in Kenya.
• Microfinance Act, No 19 of 2006: Governs the licensing and regulation of deposit-taking microfinance institutions that serve small or micro enterprises and low-income households.
• Central Bank of Kenya (Digital Credit Providers) Regulations, 2022 (DCP Regulations): Specifically provides for the licensing and regulation of NDCPs.
• National Payments Systems Act, No 39 of 2011 (NPS Act): Authorizes and regulates PSPs, such as e-money issuers, electronic retail providers, and cash merchants.
• Central Bank of Kenya (Money Remittance Regulations) 2013: Oversees the licensing and regulation of money remittance operators.
• Capital Markets Act, Cap 485A: Establishes the Capital Markets Authority (CMA) and regulates the offering of securities in Kenya.
• Insurance Act, Cap 487: Establishes the Insurance Regulatory Authority and governs insurance providers and products, including digital insurance offerings.
• Consumer Protection Act, No 40 of 2012, and Data Protection Act, No 24 of 2019: These acts provide specific safeguards for consumers, ensuring transparency in loan terms, protecting personal data, and preventing unfair practices.

Conclusion:

Kenya’s journey to becoming Africa’s ‘Silicon Savannah’ is deeply intertwined with its revolutionary digital payments ecosystem. Propelled by the unparalleled success of mobile money, particularly M-Pesa, the nation has achieved remarkable financial inclusion, bringing formal financial services to over 80% of its adult population. This mobile-first foundation has not only empowered individuals and transformed commerce but also created a fertile ground for further fintech innovation, influencing how other payment methods, including cards, gain traction.

While mobile money remains the dominant force, card-based payments are steadily carving out their niche, supported by an expanding POS infrastructure and the strategic efforts of banks and fintechs. The growth in debit, credit, and prepaid cards signifies a maturing market, yet their adoption is shaped by the overarching convenience of mobile transactions and the persistent use of cash in certain segments. The future growth of cards will likely depend on targeted value propositions and seamless integration into the existing digital habits of Kenyan consumers.

Ultimately, Kenya’s digital payments market offers a compelling case study in how innovation, driven by unique local needs and supported by a proactive regulatory environment, can transform an economy. As it continues to mature, the interplay between mobile-first habits, emerging card use-cases, burgeoning payment gateway solutions, and ongoing fintech advancements will undoubtedly shape the future of commerce and financial access, not just within its borders, but as an inspiration across the African continent.