SMEs embrace digital payments as cashless economy expands

Dar es Salaam. The number of small and medium enterprises (SMEs) in Tanzania adopting digital payments is on the rise as the country continues its transition towards a cashless economy, a new report has revealed.

Visa’s latest study, titled Value of Acceptance: Understanding the Digital Payment Landscape in Tanzania, reveals a significant growth potential for digital payments within the Tanzanian market, particularly among SMEs.

The report, launched on Monday in Nairobi, shows that 84 percent of surveyed SMEs have started accepting digital payments within the past two years, underscoring a rapid shift in the market.

According to the study, businesses are opting for digital payment systems due to lower fraud risks and greater customer convenience.

Many SMEs recognise digital payments as a key driver of growth, with 64 per cent viewing card payment acceptance as a strategic investment for future expansion. Additionally, over 50 per cent of small and mid-sized businesses operating on e-commerce platforms are actively engaging in digital transactions.

“The research findings paint a promising picture of Tanzania’s growing digital payments landscape,” said Mr Chad Pullock, Visa’s spokesperson.

“The benefits for businesses, consumers, and the broader economy create a powerful opportunity for growth.”

The study findings align with official data, with the Bank of Tanzania (BoT) confirming a significant increase in digital transactions alongside a decline in cheque usage.

According to BoT’s Monetary Policy Statement’s Mid-Year Review for 2024/25, electronic fund transfer transactions grew by 6.4 per cent in volume and 18.8 per cent in value during the first half of 2024/25 compared to the same period in 2023/24.

The BoT attributes this growth to government efforts to make digital payments more affordable, improvements in operational efficiency, and enhanced consumer protection initiatives.

Conversely, cheque transactions have declined, with the volume and value of Tanzanian Shilling-denominated cheques dropping by 17.81 percent and 9.73 per cent, respectively. Similarly, the volume and value of US dollar-denominated cheques decreased by 24.78 percent and 16.42 percent, respectively.

Despite these trends, mobile money platforms continue to play a crucial role in financial inclusion, particularly for unbanked populations. The BoT report indicates a significant rise in mobile payment transactions, driven by increased merchant adoption and the facilitation of both domestic and cross-border transfers.

The value of mobile transactions surged to approximately Sh54 trillion in November 2024, up from Sh41 trillion in November 2023. Additionally, transactions via the Tanzania Instant Payment System (TIPS) rose to about Sh10 trillion in December 2024, from under Sh1 trillion in December 2023.

Meanwhile, cheque transactions in Tanzanian Shillings have continued to decline, with their value falling from around Sh1 trillion in December 2022 to Sh800 billion in December 2024. Likewise, the value of US dollar-denominated cheques dropped from $120 million in December 2022 to $80 million in December 2024.

In December last year (2024), the BoT reaffirmed its commitment to promoting digital payment systems by announcing that consumers will not incur any charges for payments made via debit, credit, or prepaid cards at merchant Point of Sale (POS) terminals.

The Visa report also identifies opportunities to introduce more digital payment solutions with the same ease of use as cash, including enhanced security and refund flexibility. It highlights that over 30 per cent of cash-only businesses have lost sales due to customers lacking sufficient cash.

However, the study notes key barriers to wider adoption, including technical failures and high costs associated with POS terminals. While 64 per cent of small businesses acknowledge the benefits of card payments, 47 per cent report experiencing payment failures due to technical issues. The report recommends addressing these challenges to further enhance digital payment acceptance.