Module 1: The Digital Payments Landscape

How Mobile Money, Cards and Bank Transfers Work

Every time a customer pays you without cash, money moves through a chain of institutions, records and rules. If you understand that chain, you can explain to a customer why a payment has not arrived, spot a fake confirmation, choose the right payment method for each situation and reconcile your books with confidence. This lesson gives you a plain-language picture of the three main digital payment rails a business in East Africa deals with: mobile money, cards and bank transfers.

Mobile money: a ledger held by the provider

Mobile money services such as M-Pesa work as an electronic ledger run by a licensed provider. When a customer deposits cash with an agent, the agent gives up some of its own electronic value (called e-float) and the customer's wallet balance goes up. The real money backing all wallets is held by the provider in trust accounts at commercial banks, so the electronic balances are matched by funds in the banking system.

When a customer pays your business, nothing physically moves. The provider simply reduces the customer's wallet balance and increases your business account balance in the same system, almost instantly. Both sides receive a confirmation message with a unique transaction code. That code is the single most important piece of data for you: it is how you prove, trace and reconcile a payment.

Key features of mobile money you should remember:

• Real time: the payment is final within seconds and visible in your business account.
• Push payments: the customer initiates the payment from their own phone and authorises it with a PIN. You never hold their credentials.
• Closed loop records: the provider's statement is the authoritative record. An SMS on someone's phone is not.

Cards: four parties and a network

Card payments involve more players. The cardholder has a card issued by a bank, called the issuer. Your business has an agreement with an acquirer, usually a bank or a licensed payment provider, which gives you a terminal or online checkout. The two banks talk to each other through a card network such as Visa or Mastercard.

A card payment happens in two stages:

1. Authorisation: when the card is tapped, inserted or entered online, the request travels from your terminal to the acquirer, through the network, to the issuer. The issuer checks the card, the PIN or other verification and the available funds, then approves or declines. This takes seconds.
2. Clearing and settlement: later, usually at the end of the day, transactions are batched. The issuer pays the network, the network pays the acquirer, and the acquirer pays your business account after deducting its charges. This is why card money reaches your bank account later than the sale.

Unlike mobile money, a card payment can be reversed after the event through a chargeback, where the cardholder disputes it with their issuer. You will study this in Module 3.

Bank transfers: instant and batch

Bank transfers move money directly from one bank account to another. In Kenya you will meet several types:

• Internal transfers between accounts at the same bank, often instant.
• Instant interbank transfers, for example through PesaLink, which move money between participating banks in near real time.
• EFT (electronic funds transfer), processed in batches through the clearing system, so money may arrive the same or next business day.
• RTGS (real-time gross settlement), used for high-value, urgent payments settled individually through the central bank system.

Which options your bank offers, their cut-off times and their limits vary, so always confirm with your own bank.

Worked example: one day at a Nairobi hardware shop

Wanjiru runs a hardware shop in Kangemi. On a typical Saturday:

At closing time she does not count SMS messages. She compares her sales record with the Till statement, the terminal end-of-day report and her bank statement. Each method has its own source of truth.

Common mistakes to avoid

• Treating a customer's SMS as proof of payment. Always check your own business account or statement.
• Assuming card money is in the bank on the day of the sale. Plan cash flow around settlement.
• Mixing up a reversal of a mobile money payment with a card chargeback. They follow different rules and processes.
• Ignoring transaction codes and references. Without them reconciliation becomes guesswork.