Tanzania takes rapid shift to cashless economy

TANZANIA: TANZANIA is rapidly transitioning to a cashless society, driven by the growing adoption of digital payment systems across the country.

This shift is transforming business operations, with both small traders and large merchants embracing digital methods.

Innovations like the Tanzania Instant Payment System (TIPS) have revolutionised mobile money by enabling seamless cross-network transfers, reducing transaction costs and boosting adoption.

The Bank of Tanzania (BoT) said its Tanzania’s National Payment System Annual Report for 2024 payments to business transactions have seen remarkable growth of 45.76 per cent last year from transaction volume up by 28.52 per cent in 2023.

The bank report said more than 1.74 billion payments to business transactions, totalling 26.602tri/- were processed last year.

“This increase highlights the growing adoption of digital merchant payments, marking a significant shift towards more efficient and accessible business transactions,” the report stated.

The BoT attributed the growth to the introduction of the merchant ‘Pay by Phone’ system, LIPA Namba, along with improved payment infrastructure, strong economic growth, a supportive regulatory environment and the licensing of additional payment service providers.

The volume and value of personal-to-personal transfers rose by 31.49 per cent and 38.66 per cent, respectively.

During the year under review, the volume of personal to personal transactions totalled 479.11 million worth 15.70tri/- compared to 364.36 million transactions worth 11.32tri/- in 2023.

The National Switch has lowered costs associated with bilateral arrangements, enhancing transaction processing efficiency.

Wallet-to-bank transfers which reflect a savings pattern, totalled 9.50 million transactions worth 3.60tri/- last year, marking increases of 43.32 per cent in volume and 32.70 per cent in value.

Similarly, bank-to-wallet transfers reached 82.68 million transactions worth 11.29tri/-, showing growth of 39.88 per cent in volume and 41.89 per cent in value.

The rise in use cases reflects efforts to foster a supportive ecosystem for digital payments, improving accessibility, efficiency and affordability.

The rise of mobile money platforms, mobile banking apps and online payment systems has enhanced financial inclusion and economic efficiency.

The widespread use of mobile phones and services like M-Pesa, Mixx by Yas and Airtel Money has fuelled this shift, making digital payments an integral part of daily life for many Tanzanians.

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Business owners can track sales easily and maintain transparent financial records, which helps in managing finances and streamlining operations.

Consumers, too, are reaping the rewards of this cashless revolution. The ability to pay for goods and services with just a few taps on a mobile phone has made transactions more convenient and safer.

Initiatives such as the National Payment System (NPS) policy aim to promote financial inclusion and encourage the adoption of electronic payment systems.

Commenting on the BoT report, economist cum investment banker Dr Hildebrand Shayo highlighted the significant growth of Tanzania’s national payment system since 2023, as noted in the 2024 report.

This growth is largely driven by the rise of e-commerce and the increasing demand for cashless payment solutions.
From an economic perspective, digital payments reduce transaction costs associated with cash handling and banking services.

Key drivers include urbanisation and evolving lifestyles, with individuals moving to cities seeking faster, more efficient transaction methods.

The economic benefits of digital payments in Tanzania are substantial. Direct benefits include increased financial inclusion, as digital wallets and mobile banking provide access to services for unbanked populations, helping reduce income inequality.

Businesses also benefit from improved operational efficiency, reduced fraud, and enhanced tax compliance.
Digital payments streamline tax collection and reduce leakages from the informal sector.

Beyond this, digital payment systems promote economic growth by enhancing transaction efficiency, boosting consumer spending, and attracting fintech investments.

This creates job opportunities and facilitates cross-border trade, improving international transactions and remittances.

Moreover, reducing cash dependence minimizes risks such as theft, counterfeiting and money laundering.
Looking to the future, Dr Shayo emphasizes the importance of expanding digital payments, which foster innovation and job creation.

The rise of fintech startups and digital banking solutions illustrates the growing employment opportunities in technology, finance, and e-commerce.

Financial Analyst, Mr Kelvin Msangi stated that this report highlights a major shift to digital transactions, with P2B transactions surging 71.41 per cent in 2023 (18.25tri/-) and rising 28.52 per cent in volume and 45.76 per cent in value in 2024 which as per the report this might have been driven by innovations like LIPA Namba, improved infrastructure and regulation.

He said this growth signals a boost in financial inclusion, commerce, and tax revenue not only in Tanzania but across East Africa, where research indicates mobile finance penetration is 71 per cent in Kenya, 60 per cent in Tanzania and Rwanda, and under 10 per cent in Ethiopia.

However, on ground research shows 15 per cent – 30 per cent of P2B transactions serve as disguised cash withdrawals to avoid higher standard withdrawal taxes, inflating adoption figures.

P2P transactions rose 31.49 per cent in volume and 38.66 per cent in value, while Wallet-to-Bank (W2B) transfers—linked to savings—grew 43.32 per cent, and Bank-to-Wallet (B2W) transfers expanded 39.88 per cent, improving financial access.

Despite these notable gains, infrastructure gaps, slow merchant onboarding, financial literacy, and regulatory barriers persist.

Addressing these issues, alongside revising tax policies to curb P2B cash withdrawal loopholes, is crucial for sustained digital financial growth and regional integration.

Key drivers include urbanisation and evolving lifestyles, with individuals moving to cities seeking faster, more efficient transaction methods.

The economic benefits of digital payments in Tanzania are substantial. Direct benefits include increased financial inclusion, as digital wallets and mobile banking provide access to services for unbanked populations, helping reduce income inequality.

Businesses also benefit from improved operational efficiency, reduced fraud, and enhanced tax compliance.

Digital payments streamline tax collection and reduce leakages from the informal sector.

Beyond this, digital payment systems promote economic growth by enhancing transaction efficiency, boosting consumer spending, and attracting fintech investments.

This creates job opportunities and facilitates cross-border trade, improving international transactions and remittances.

Moreover, reducing cash dependence minimizes risks such as theft, counterfeiting and money laundering. Looking to the future, Dr Shayo emphasizes the importance of expanding digital payments, which foster innovation and job creation.

The rise of fintech startups and digital banking solutions illustrates the growing employment opportunities in technology, finance, and e-commerce.

Financial Analyst, Mr Kelvin Msangi stated that this report highlights a major shift to digital transactions, with P2B transactions surging 71.41 per cent in 2023 (18.25tri/-) and rising 28.52 per cent in volume and 45.76 per cent in value in 2024 which as per the report this might have been driven by innovations like LIPA Namba, improved infrastructure and regulation.

He said this growth signals a boost in financial inclusion, commerce, and tax revenue not only in Tanzania but across East Africa, where research indicates mobile finance penetration is 71 per cent in Kenya, 60 per cent in Tanzania and Rwanda, and under 10 per cent in Ethiopia.

However, on ground research shows 15 per cent – 30 per cent of P2B transactions serve as disguised cash withdrawals to avoid higher standard withdrawal taxes, inflating adoption figures.

P2P transactions rose 31.49 per cent in volume and 38.66 per cent in value, while Wallet-to-Bank (W2B) transfers—linked to savings—grew 43.32 per cent, and Bank-toWallet (B2W) transfers expanded 39.88 per cent, improving financial access.

Despite these notable gains, infrastructure gaps, slow merchant onboarding, financial literacy, and regulatory barriers persist.

Addressing these issues, alongside revising tax policies to curb P2B cash withdrawal loopholes, is crucial for sustained digital financial growth and regional integration.