By most measures, Kenya is a shining model of financial inclusion in Sub-Saharan Africa. As the home of the wildly successful M-Pesa mobile money service, Kenya saw 79 percent of all citizens above the age of 15 make or receive digital payments last year, according to the 2017 Findex. Brookings Institution gave Kenya its highest score for the third year in a row in its 2017 Financial and Digital Inclusion Project report.

And yet, when the country attempted to make its bus transportation system cashless, the experiment failed miserably. It didn’t matter if the population had reached high levels of financial account ownership and usage. Without properly accounting for local factors, going cashless in the transportation sector was destined to collapse from the start.

Externalities Overflow

The benefits of a cashless transportation system are manifold, especially so in developing countries where city centers swelling with rural migrants are experiencing increasing over congestion. The National Association of City Transportation Officials, a coalition of the Departments of Transportation in the United States, found that up to a third of the time a cash-based bus ran was spent in “dwell time” delays while customers paid their fare with cash.

In Visa’s Cashless Cities study, which aggregated data from a cross-section of global cities varying by digital maturity, digital payments on buses took 2.6 seconds on average, versus 4.2 seconds for cash payments, a figure that would be higher if it didn’t include Bangkok’s system of employing conductors to collect cash fares after a passenger has boarded. Eliminating paper tickets also prevents pollution on buses and at stations. Additionally, contactless systems offer cities and operators far more macro data in understanding customer habits and what routes should have further resources.

Above all, the savings and added tax revenue of going cashless are extensive. Visa’s Cashless Cities report revealed that transit agencies spent an average of 14.5 cents of every physical dollar collected, compared to only 4.2 cents for every digital dollar. By taking physical money out of the hands of bus operators and passengers, price gouging, fare evasion, pilfering and police corruption vanish as investors and governments can more securely rely on consistent, fully accounted for revenue. Interoperable, openloop contactless options also promise to better attract tourists who can continue to use their credit cards as they travel.

As Mondato Insight has discussed before, there are perils that accompany the “creative destruction” of going cashless. But while cities like London may already be financially inclusive enough to transition to openloop and interoperable contactless transaction options like debit and credit cards with near field communication technology (NFC), developing markets can ease transportation customers into integration by initially permitting the purchase and top-ups of prepaid cards that can be refilled through cash, credit or mobile money services.

Kenya Wants In

The promise of eliminating corruption, theft and inefficiency by going cashfree seemed to be Kenya’s perfect solution to its chaotic matatu bus system. The matatus are owned by SACCOs, or Savings and Credit Cooperative Organizations, but they are operated by private individuals who must pay SACCOs a fixed daily rate. This fixed rate encourages operators to pack their buses, drive at unsafe speeds and jack up prices during rush hour or when it rains. Matatu owners complained that operators were stealing revenue, and corrupt police officers were pulling aside matatu operators for the slightest of infractions — real or imagined — and demanding bribes. To fix these problems, Kenyan legislators began a program in 2013, and a year later mandated that all matatus in Nairobi become cashless.

Ecosystem players swarmed at the opportunity to process fare transactions for the 70 percent of Nairobi’s 4 million residents that rely on matatus every day. Equity Bank partnered with Google to introduce BebaPay, a cashless payment card for transit services. The cards were made available free of charge at Equity Bank service agents, and it could be prepaid or topped off using cash or M-Pesa at service agents around the city.

All the decisionmakers — the Kenyan government, solution vendors, and matatu owners — believed the new system would increase revenue flow and maximize efficiency. But the actors tasked with implementing and enforcing this new system were also the old system’s greatest perpetrators — and they were not consulted on the matter.

With a cashfree system, matatu operators could no longer raise fares at will, and it was now the matatu owners who processed revenue at the point of purchase, not the bus operators — precluding them from lifting fares. Operators began to conveniently “lose” the Android phones required to process cashfree transactions, or claim the system was broken, and insist customers pay with cash. Although cash fares were declared illegal by the Kenyan Parliament, with violators subjected to fines, license suspension, and up to a year in prison, as Ken Griffith, CEO of Solidus explained, police officers gladly looked the other way because they needed matatu operators to carry cash in order to extort money from them, as had been customary.

Over a million Kenyans purchased transit cards, but while many saw it as a panacea to matatus’ ills, customers, too, ran into issues. The system had in fact become less interoperable for passengers, as several competing transit cards from brands like Safaricom M-Pesa and TaptoPay were introduced to different bus lines. Until they fixed the issue a year later, passengers had to wait for certain buses that would accept their particular transit card. With all matatu operators abandoning the new system soon enough, the cashless matatu experiment crashed and burned.

That is not to say cashless transportation can’t work in Kenya — the more formalized rail system has successfully gone cashless, for example. This transition was far easier when done by a central state corporation without the same incentives — and power — to stick with cash as the private matatu operators. Without such a centralized model, the state and private sector alike failed to account for the matatus’ unique system of incentives and were unable to corral it.

Rwanda Shines Through

In developing markets, the most successful transitions to cashfree transportation systems have been homegrown private-public partnerships, and Rwanda serves as the best example of that. Kigali’s transportation system was beset with many of the same problems as in Kenya — over congestion, delays, and lost revenue of up to 40 percent due to fraud, fare evasion, and pilferage. But Rwanda took a much different approach in designing a cashfree transaction system by embarking on a private-public partnership instead of the Kenyan government’s clumsy efforts to force private matatu operators to use separate private companies to process their transactions.

The Rwandan government awarded AC Group, a Rwandan tech start-up, with the contract to design a cashless transit payment system. Consulting with the government, commuters, as well as bus operators allowed AC Group to tailor the system to all constituents, AC Group CEO Patrick Buchana told Hope Magazine.

As part of the Smart Kigali Initiative, three bus firms that provide public transportation services in Kigali agreed to transition to the contactless Tap&Go bus fare system created by AC Group. Tap&Go cards could easily be bought and refilled at bus stations using mobile money as well as cash and credit. The Tap&Go system managed to increase revenue by over 30 percent and speed up daily commutes. There are now over a million Tap&Go users in Rwanda, and 100,000 in Cameroon, where AC Group has expanded their operations.

From cultural and structural standpoints, Nairobi faced greater hurdles in reforming its matatu bus system than Kigali, which is much smaller, to begin with. Kenya, which ranked 148 In 2017’s Corruption Perception Index, faced a more resilient culture of abuse that made enforcement more difficult than in Rwanda, which was ranked the third-least corrupt country in Africa.

Though both Kigali and Nairobi’s bus systems are operated by private companies, Kigali’s three operators are commissioned by the city itself, whereas Nairobi’s matatus have a complex private ownership that incentivized operators to sabotage the transition. When scores of bus conductors were laid off in Rwanda, they weren’t in the position that matatu operators were to resist. Rather, market forces worked their magic so that over 170 new jobs in Kigali related to Tap&Go were later created for these conductors, according to Mr. Buchana.

Structural factors aside, where Kenya’s experiment failed, Tap&Go succeeded. Tap&Go in Rwanda was a locally developed payment system with consultation from all relevant parties, whereas Kenya took a distinctly top-down approach to applying the changes, threatening matatu operators instead of working in tandem with them, a tactic that failed due to police officers’ willful negligence. Having one card provider increased passenger convenience in Kigali, in contrast to what happened in Nairobi. Even as Kenya’s matatu owners call for a return to a cashless system to end vast corruption, for the time being, the forces of corruption and inefficiency have prevailed.

To be sure, Kenya’s failed cashless bus experiment is a hiccup in the inexorable movement to a cashless society. Even within Kenya, there have been greater successes elsewhere, with matatu operators in Nakuru more readily adopting cashless payments following educational efforts that succeeded in promoting the service first, not the product.

Iterations All Over The Place

With these small-scale successes, challenges continue to be met, though governments and financial firms persist in their efforts. Myanmar is experiencing its own slog from an inefficient cash-based transportation system. While Myanmar’s Yangon Bus Public Company reports fare losses of about 15,000 Kiryat per bus per day, the company originally selected to implement a cashless payment system, Excel KC Myanmar Co. Ltd, had its tender revoked for not following the stipulations of the agreement, forcing the country to go back to the drawing board with a new tender winner. But the country continues to aim to go fully cashless in five years, and transportation will be a key driver.

On the other hand, there have been exciting new developments In Lagos, Nigeria. After the Lagos Connect card was first launched in November 2017, the Nigerian government has taken bold steps in recent months by introducing interoperable payment cards in its BRT system to combat widespread fraud. The FarePay card, which can be purchased at FarePay agent locations via cash or bank transfers, utilizes NFC technology to speed up fare transactions, but the card can also be used at ATMs and for point of sale and web transactions. In partnership with MasterCard and Visa, it can also be used on mass transit systems in other parts of the world. The system had already processed over 30,000 trips a month after it first launched in May.

Singapore, which has already introduced interoperable, contactless Visa payment options, is striving for its transportation system to be completely cash-free by 2020 in order to push citizens towards an entirely cash-free existence.

And these countries aren’t doing it alone. With regional hubs utilizing local experts on the ground, Visa’s Global Transit Solutions team is now working with cities and countries around the world to aid transportation networks’ transition away from cash, learning from the success and failures of transit experiments around the world to collaborate with local partners to ensure successful implementation.

Visa is currently working on projects in over 150 cities and helped launch new programs in about 20 cities this year. Visa also launched in June a Fintech fast-track program to provide easy onboarding with their team among Fintech startups that offer new solutions to local problems, including expanding digital banking and payments in areas where traditional banking has failed, which will aid in integrating the financially excluded during transitions. With the Visa Ready program, which certifies digital payments solutions as adhering to their standards, Visa hopes to provide a global framework that will better integrate transit payment options so a commuter can travel anywhere in the world and still use the same card when using mass transit.

Considering its informal tendencies and proclivity to serve a disproportionate number of financially excluded populations, such as the elderly and informally employed, transportation systems in developing countries present a unique challenge, but also a profound opportunity for firms to usher in a more efficient, less corrupt and more inclusive cashless society.

All the forces pushing countries towards higher level of financial inclusion aid the cause if done right, like Rwanda’s embrace of mobile money payment options to refill its Tap&Go cards. Expanding transit payment options to be interoperable with other sectors, as Lagos’ MyFare card promises to do, will greatly help contactless transit cards be seen as increasing convenience and efficiency by customers instead of a burdensome purchase to refill. But ultimately, as Kenya’s cautionary tale and Rwanda’s success proves, there can’t be a one size-fits-all approach to implementing cashfree payment systems. In order to pad this transition, the solutions can’t be globally dictated, but locally informed.

Image courtesy of [Ralf Steinberger](https://www.flickr.com/photos/ralf-steinberger/37644210574/in/photolist-Zmuqim-777HvY-9Kw6xD-9KyUYo-8tQTrh-83962x-9Kw63e-9KyQuE-83cbP7-9Kw2EV-9KvYXT-838YMR-9KyQ5b-9KyMeh-QLt6LA-9KvYxH-773Kuc-8Pepz6-4EKN56-9KyJL3-773G3H-773NHz-fMhqJ-aeHh33-9KyRYN-83caPu-83cbdW-83c7Pf-83caBd-773Mg8-83ccv7-cbpRVQ-8394tc-D3wq1-gV96xy-7yMkoL-83capS-83cbZ7-773DFV-7yLw8Q-82q1f4-5TqMXF-4EKMMg-7yJhgt-9Kw7uc-9KyJaJ-eqD9bW-9KyKAY-7yJ2Ct-dWnnen)
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