Tanzania Turns to Cost-effective Cash

Transaction fees added to digital payments have seen Tanzanians turn to cash, with mobile money usage dropping sharply after their introduction in July 2021 and the government recently announcing a second fee reduction.

A study by the Global System for Mobile Communications (GSMA) found mobile P2P transfers and cash-out transactions dropped 38 percent between July and September 2021 following the launch of Tanzania’s mobile money levy, with ‘the change in consumer behaviour [leading] to increased use of cash.’

Transaction fees increased from being in line with the average across East Africa to being around three times as much, with the cost of P2P transfers rising by 258 percent for on-net transactions and 133 percent for off-net transactions between June and September 2021. Cash-out transactions rose by 45 percent over the same period.

In response to widespread complaints and rising cash use—which the government is aiming to discourage—the levy was reduced by 30 percent in September 2021. In June 2022, the government announced a further decrease of 43 percent. Despite these efforts, the country’s mobile money economy is still expected to suffer, having experienced an estimated 12 percent contraction compared to pre-tax levels.

Quartz Africa reports the government has collected an estimated $28 million from the unpopular fees in the year since their introduction, but they have been widely criticised, with small business owners especially impacted by the reduction in online sales.

Controversies around digital transaction fees—whether levied by governments or payment providers—are far from being a problem unique to Tanzania, or even Africa. Small and medium-size business owners in countries including Britain and Canada are campaigning against fees they say harm their interests as well as those of consumers, with the UK Payments Regulator recently promising a review of ‘soaring costs and anti-competitive practices in the card payment sector’.

While action on reducing fees associated with cashless payments is sorely needed worldwide, the scale of the problem is a reminder of the value of maintaining cash as a payment option, supporting small businesses and ensuring customers have the option of paying with no added fees.