The Revolution That Charges by the Hop: Why Kenya’s Digital Money is More Expensive Than the Cash It Was Meant to Replace

By Anthony Muchoki | January 2026

I watched a mama mboga in Gikomba market last week reject an M-Pesa payment. The customer, a young professional, phone already out—looked genuinely confused. “Cash only,” she said, pointing to a hand-scrawled sign that hadn’t been there six months ago. “Too many problems.” This was not a digitally illiterate trader clinging to tradition. This was a businesswoman who had been early to adopt mobile money, who had once proudly displayed her till number, retreating from a system that had become more expensive than the problem it claimed to solve.

This scene is Kenya’s digital paradox in miniature: the Silicon Savannah is going backwards. Not because Kenyans lack access to digital financial services—84.8% have formal financial access according to the latest FinAccess survey—but because those who have accessed the digital ecosystem are rationally choosing to exit it. The question is not “why won’t Kenyans go digital?” The question is “why are Kenyans who went digital coming back to cash?”

The answer reveals something uncomfortable about Kenya’s celebrated financial innovation: we have built not a revolution, but a fragmented collection of competing toll roads. Each platform, M-Pesa, Airtel Money, bank apps, PesaLink, operates as a walled garden, extracting rent at every transaction. The cumulative cost of moving money through this ecosystem has become a tax on velocity that the informal economy simply will not pay.

The Arithmetic of Survival

Consider the mathematics confronting a boda boda rider in Nakuru. He earns perhaps 1,500 shillings on a good day through 30-40 small trips. Half his customers pay via M-Pesa. By day’s end, he has 750 shillings in his M-Pesa wallet. To access that money—to buy fuel, to eat, to pay his rent—he must withdraw it. The withdrawal fee: 28 shillings for amounts above 500 shillings. That is 3.7% of his earnings, gone before he can spend a single shilling.

But the extraction does not end there. If he sends 200 shillings to his wife in the village, that costs another 7 shillings. If she then withdraws it to buy vegetables at the market, another fee. If the vegetable vendor then uses that money to pay her supplier, and the supplier withdraws—the cascade continues. A single 200-shilling note, passing through three digital hops before settling, loses approximately 10% of its value to transaction costs.

Cash, by contrast, is free. The vegetable vendor accepts it. The supplier accepts it. The boda boda rider’s wife can spend it immediately without visiting an agent or incurring a fee. In the Jua Kali economy where margins are measured in tens of shillings, this 10% digital penalty is the difference between survival and collapse.

This is not a hypothetical calculation. This is the lived reality that drove mobile money transaction volumes down 29.2% in May 2025—a single month collapse that should have sent policymakers into crisis mode but was instead treated as a statistical anomaly. It was not an anomaly. It was a vote of no confidence.

The Fragmentation Tax

The genius of M-Pesa, when it launched in 2007, was its simplicity: anyone could send money to anyone, instantly, cheaply. But that was when M-Pesa was a monopoly serving an unbanked population desperate for any alternative to physical cash transport. Now, M-Pesa is one platform among many, and the ecosystem has optimized for competition, not cooperation.

With 96.5% market share, M-Pesa effectively is the mobile money market. Every merchant must accept M-Pesa or lose customers. But the other 3.5%—Airtel Money, T-Kash, exists in a state of perpetual irrelevance not because their technology is inferior but because network effects have created a lock-in. A merchant who accepts only M-Pesa captures 96.5% of the market. A merchant who accepts M-Pesa, Airtel, and bank transfers captures perhaps 97% of the market while tripling their reconciliation complexity.

The rational response is to accept only M-Pesa. Or, increasingly, to accept only cash.

The banks, recognizing the M-Pesa threat, responded by building their own walled gardens. Equity Bank’s “Equity Mobile” app, KCB’s banking app, PesaLink for interbank transfers, all technically sophisticated, all designed to keep customers within proprietary ecosystems. The problem is that these platforms require smartphones, data bundles, and digital literacy. The informal trader operating on a feature phone through USSD finds these apps inaccessible or unnecessarily complex compared to the elegance of cash.

What Kenya needed was a public utility, a single national payment switch that would allow any app to send to any account with zero friction, like India’s UPI. What Kenya got was a dozen competing platforms, each charging fees, each requiring separate integration, each creating another silo in an already fragmented landscape.

The cost is not just financial. It is cognitive. A trader must remember which customers prefer M-Pesa, which prefer bank transfers, which prefer Airtel. She must reconcile payments across multiple platforms, each with different reporting interfaces. Cash eliminates this cognitive load entirely: a 50-shilling note is a 50-shilling note, universally accepted, instantly verifiable, immediately spendable.

The Government as Adversary

If fragmentation were the only problem, the market might eventually consolidate or interoperability might improve. But the government has weaponized digital payments as a revenue extraction mechanism, fundamentally altering the incentive structure.

The Finance Act 2023 increased the excise duty on mobile money transfers from 12% to 15%. The Finance Bill 2024 proposed pushing it to 20%. These are not marginal adjustments; they are aggressive taxation of the medium of exchange itself. Every time money moves digitally, the government takes a cut. The more frequently money circulates, the more the government collects.

This creates a perverse incentive: economic velocity becomes a liability. A trader who receives digital payments and immediately withdraws cash to avoid multiple taxable hops is not being irrational. She is defending her margins against a fiscal policy that treats money movement as a tax base rather than recognizing that economic velocity is the foundation of prosperity.

The Kenya Revenue Authority’s increasing integration with payment platforms to monitor turnover adds another dimension of threat. For the informal merchant operating outside the tax net—not out of criminal intent but out of economic necessity—digital payments create a visible trail that cash does not. When choosing between a payment method that might trigger tax enforcement and one that preserves anonymity, the informal sector chooses anonymity.

The government’s stated goal is to expand the tax base by formalizing the informal economy. The actual result is to drive the informal economy deeper into shadow. You cannot force formalization through surveillance and taxation. You can only incentivize it through making formal systems genuinely superior to informal alternatives.

The Fraud Epidemic and the Trust Collapse

In 2024, Kenyans lost 810 million shillings to mobile banking fraud, a 344% increase from the previous year. Nearly 10% of mobile money users experienced direct financial loss. Safaricom fired 113 employees for involvement in fraud, revealing that the threat comes not just from external criminals but from insider collusion within the very institutions meant to safeguard money.

SIM swap fraud has become epidemic. A criminal hijacks your phone number, accesses your M-Pesa account, and drains it before you realize what has happened. The sophistication is alarming: syndicates involve telecom employees, payment platform insiders, and organized networks that operate with industrial efficiency.

The rational response to this threat is defensive cashing out. Users receive money digitally and immediately withdraw it to physical cash, which cannot be hacked remotely. This behavior—treating digital platforms as transit mechanisms rather than storage mechanisms—explains why Currency in Circulation continues to grow even as digital transaction infrastructure expands.

Trust is the foundation of any financial system. When that trust fractures—when people hear stories of neighbors losing life savings to SIM swaps, when they experience system downtime that prevents them from accessing their own money, when they witness the theft occurring with insider assistance—digital platforms become acceptable for temporary transit but unacceptable for storage of value.

Cash, by contrast, is physically secure. If it is in your hand or under your mattress, no remote hacker can access it. It is not subject to system failures, network outages, or the technical fragility that has repeatedly paralyzed M-Pesa and, by extension, paralyzed the national economy.

The Social Logic of Cash

The economic arguments against digital payments—cost, fragmentation, taxation, fraud—are only part of the equation. Cash serves social functions that digital platforms have failed to replicate, and these functions matter enormously in the informal economy.

Consider the gendered dimension. Research across East Africa reveals that women use cash to create financial autonomy within households. A digital wallet, no matter how secure via PIN, leaves a digital trail. A husband can demand to see SMS transaction histories. He can monitor balances. Cash, however, is opaque. A woman can hide resources from a spouse, creating an emergency fund for school fees or protecting savings from a partner’s demands.

This is not theoretical; this is documented behavior across thousands of households. Women prefer cash because cash offers privacy that digital systems do not. Until mobile money platforms offer granular privacy controls—hidden vaults, invisible sub-accounts, funds that do not display on the main screen—cash will remain the preferred tool for financial autonomy for millions of women managing household economies.

Similarly, the Chama culture, the rotating savings and credit associations that are the primary financial vehicle for informal sector workers—resists digitalization because it is fundamentally social. The act of meeting physically, putting cash on the table, counting it together, builds trust and accountability. Digital transactions are sterile, invisible, and crucially, they create a digital record that can expose the group to taxation or regulatory scrutiny. Table banking—where cash is collected and immediately loaned during the meeting—keeps capital circulating without ever touching a bank server.

The informal economy is also an economy of negotiation. Prices are fluid, discounts are given, amounts are rounded. Digital payments, with their precise audit trails, introduce a rigidity that clashes with this flexibility. A trader practicing dynamic pricing based on the customer, the time of day, and the relationship cannot easily operate in a system that creates permanent records of every transaction.

The India Comparison: Public Good Versus Private Toll Road

India faced the same challenge Kenya faces: a massive informal economy, limited banking penetration, fragmented payment systems. India’s response was to build UPI—Unified Payments Interface—as a public utility. The government mandated interoperability, subsidized merchant transaction fees to zero, and designed the system to be free at the point of use. Digital became cheaper than cash.

The result: UPI processed 16.6 billion transactions in December 2024 alone. It has penetrated every layer of the Indian economy, from street vendors to luxury retailers. It succeeded not because it was technologically superior but because it was economically rational to use.

Kenya chose the opposite path. It allowed a private monopoly to build the infrastructure, then treated that infrastructure as a tax farm. M-Pesa is efficient, but it is a toll road. Every transaction extracts rent. The government then imposed additional taxes on top of those private fees. The cumulative cost makes digital payments more expensive than cash for the very population that digital finance was meant to serve.

This is the fundamental failure: Kenya’s digital infrastructure is optimized for extraction, not circulation. India’s infrastructure is optimized for velocity. The results speak for themselves.

The Retreat Accelerates

The data from 2023-2025 is unambiguous. Financial access remains high, but financial health has collapsed to just 18.3%. Savings rates are declining for the first time in over a decade. Mobile money transaction volumes are contracting. Currency in circulation is expanding.

These are not separate trends. They are symptoms of a single underlying reality: the digital financial ecosystem has reached the limits of what it can capture under its current architecture. The early adopters—the middle class, the formally employed, those with stable incomes—remain in the system because the convenience outweighs the costs. But the informal sector, the Jua Kali worker, the smallholder farmer, the mama mboga—they are voting with their wallets, and the vote is for cash.

The government’s response has been to double down: more taxation on digital transactions, more surveillance, more aggressive enforcement. This is solving the wrong problem. The informal economy is not informal because of lack of access. It is informal because the formal system does not serve its interests.

What Must Change

Kenya stands at a crossroads. It can continue on the current path, accepting that digital finance will remain a middle-class luxury while the majority of economic activity occurs in cash. Or it can undertake a fundamental restructuring of its financial architecture around five principles:

First: Build a National Public Payment Switch

The Central Bank must mandate true interoperability through a non-profit public utility that functions like UPI. Any app must be able to send to any account with zero friction and near-zero cost. This is infrastructure, not a business opportunity.

Second: Stop Taxing Velocity

Impose a three-year moratorium on transaction tax increases for amounts below 1,000 shillings. Recognize that economic velocity creates wealth, and taxing the movement of money destroys the velocity needed for prosperity. Tax profits, not circulation.

Third: Design for Privacy

Financial platforms must build privacy features that mirror the anonymity of cash. Hidden vaults, private sub-accounts, funds that are not visible to anyone looking over a user’s shoulder. Women need financial autonomy; platforms must enable it.

Fourth: Solve the Trust Crisis

Implement real-time, low-cost escrow mechanisms that protect merchants from reversal fraud while protecting buyers from non-delivery. Restore confidence that digital transactions are final and secure.

Fifth: Meet Users Where They Are

Stop designing for the banked, smartphone-owning middle class. Design for the feature phone user, the USSD menu navigator, the person operating on 2G networks in rural areas. If digital finance cannot serve them efficiently, it will never displace cash.

The Revolution That Never Was

M-Pesa was supposed to be the revolution. It was supposed to bank the unbanked, formalize the informal, transform the economy. For a time, it seemed to be succeeding. But revolutions are not measured by access statistics. They are measured by behavior change, by economic transformation, by whether people’s lives actually improve.

By that measure, Kenya’s digital revolution has stalled. The informal economy has tried the digital ecosystem, calculated the costs, experienced the risks, and made a rational decision to retreat. The mama mboga in Gikomba who now insists on cash is not a luddite. She is an economist who has done the math and found digital wanting.

Until policymakers accept this verdict and redesign the system to serve the interests of actual Kenyans rather than extracting rent from them, the retreat will continue. The walled gardens will become more fortified, more expensive, and less relevant. And the revolution—the real transformation of the economy—will remain elusive, locked outside the gates of the gardens we built to capture it.

The future of Kenya’s economy will not be determined in boardrooms or central bank meetings. It will be determined in markets like Gikomba, by traders like that mama mboga, who will use whatever financial tools actually work for her survival. Right now, those tools are increasingly cash. If that changes, it will be because we built a system worth trusting, not because we forced adoption of one that isn’t.