As Tanzania advances in a cashless economy, mobile money transactions are also rising, with companies including Vodacom’s M-Pesa, Airtel Money, Mixx by Yas, Halo Pesa, and T-Pesa leading this race.
This sector now has non-telecom players who exploit it, like Azam Pesa and Selcom, plus traditional banks introducing their own ways similar to those of mobile banking; here I am talking about agencies which are mainly in places where ATMs and bank branches are unavailable.
The Central Bank of Tanzania, BoT, suggests that the number of transactions among individuals, individuals to businesses, and mobile wallet to bank wallet is growing, with the year 2024 exceeding 2.23 billion transactions, with a combined worth of Sh49.9 trillion, almost a two-fold increase from the previous year, 2023.
Not left behind
It is obvious Tanzanians are not left behind in the digitalisation of the financial system, but here comes a problem: transaction fees. They are too high—high for low-income earners to keep up with the pace of this rapid digitalisation of the financial system. Despite the increase in transactions conducted per year, the government shouldn’t overlook the charges people are incurring.
The convenience of using mobile banking and wireless transfers is undeniably true. With innovations like Tanzania Instant Payment System (TIPS), which has revolutionised mobile money by enabling seamless cross-network transfers.
It smoothens the way of purchasing and selling products and services, reduces corruption and secures a way to send money across the country quickly. It also complements financial inclusion of people around the country. It’s the formal way of doing transactions; hence, it may reduce financial-related crimes like money laundering and scamming.
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From 2019 to 2024, there was a significant increase in the use of mobile money transactions despite the imposition of taxes by the government in 2021 and 2022. The Central Bank has reiterated that the industry has been growing year after year, with a 37 per cent increase last year compared to 2023.
Pay by Phone ‘Lipa Namba’ has made personal-to-business payments a lot easier. It has lower fees compared to normal withdrawals from agents, and the number of agents, according to the Central Bank, rose by 18.97 per cent, reaching 1,475,281 as of 2024, compared to 2023.
If you are to withdraw Sh300,000, you will be charged Sh7,000 as the company charges plus government levies on that single transaction. With these enormous fees on transactions, still people are using mobile money in their daily transactions, which means they trust the method because it’s easy, secure and efficient.
Lipa Namba has increased the number of businesses using the cashless method of buying and selling products. This, too, Lipa Namba, has its charges, which to me are also high for a local person to use for multiple payments in a day. The cost increases as you pay between two different mobile networks, like from Airtel Money to M-Pesa Lipa Namba.
With the growing number of people using mobile money, the government and stakeholders should reduce charges on the transactions conducted, either personal-to-personal or personal-to-business.
Instead, I believe, for some reason—maybe fiscal policies and profit-oriented mindsets—the charges are this high. Both government and financial service providers aim to increase income and profit, respectively, but for the sake of making things better than they are now, the review of charges should be double-checked.
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Mobile banking
High charges on mobile banking do the opposite of financial inclusion. Low-income earners and those in remote places are not well included in this system, as the charges are too high for them. Company charges plus the government taxes are imposed on transactions of amounts exceeding Sh999.
It also increases the cost of living for individuals. An individual who wants to save Sh10,000 by sending it from a mobile wallet to a bank account will be charged Sh2,000, that’s 20 per cent of the whole amount. So, it not only increases the cost of living but also discourages savings. I was just thinking, with these charges being too high, is it not inconsistent with the government’s objectives of having a formalised financial system and a cashless economy?
With all the charges, digital payment still has potential in boosting the formal financial system among the people in Tanzania. If you move around local markets and supermarkets, you will see Lipa Namba posters, which allow people to pay for their products or services digitally, either by application for those with smartphones or by USSD for those with feature phones.
Lipa Namba is now widely used, with transactions worth Sh26 trillion in 2024, because it has relatively low charges compared to normal transactions. With this method, it’s easy to track all transactions made by individuals, which is good both policy-wise and for revenue collection purposes. It is also user-friendly for entrepreneurs, cost-effective and makes it easy to track finances for better financial management.
Policy review needed
As a user of digital payments for both mobile wallets and traditional banks, I would suggest a policy review on charges incurred between the two. Sending money from a bank to a mobile wallet and vice versa, charges are super high. These charges should be reduced to even half of what they are now.
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It would create a more interconnected financial system, which would allow individuals to control their money in banks and mobile wallets more cost-effectively. Low charges will also encourage savings, which I believe is good for the economy.
Nonetheless, competition among service providers to lower transfer charges should be encouraged. We have seen the move the government took to lower levies in 2022 after major rebuke from the public that the charges were too high. Well, the government should do something to encourage service providers to lower fees on transactions.
This will not only increase the number of transactions conducted but also incentivise the use of a digital/cashless economy—a seamless, modern, and efficient way of doing transactions—and will also help in the formulation of other developmental policies after studying public spending.
And finally, I urge the government, maybe with telecom giants in Tanzania, to formulate a single payment system to be used by businesses. You see the Lipa Namba—it is one of the great initiatives, but it costs much because every telecom company has their own version, and when paying a business owner who uses a different company from yours, further charges are incurred by the customer.
Having a single way of paying would make it a lot easier to control how much telecom companies charge people for every purchase they make.
Mobile banking and digital payments hold huge potential to empower low-income earners, boost the formal economy, enhance tax collection, and support entrepreneurship in Tanzania. However, this potential can only be fully realised if barriers addressed in this writing, like high transaction charges, are addressed.
I also urge policy and decision-makers, financial institutions, and mobile service providers to prioritise accessibility, affordability, and inclusivity in the design and implementation of digital financial services.
Building a truly inclusive digital economy means ensuring that everyone benefits from this modern way of payment. What are your thoughts on this matter?
Sigyfrid Masawe is a Development Enthusiast based in Dar es Salaam, Tanzania. He’s available at sigychrs@gmail.com. The opinions expressed here are the writer’s own and do not necessarily reflect those of The Chanzo. If you are interested in publishing in this space, please contact our editors at editor@thechanzo.com.
