Kenyan commercial banks are urging the Central Bank of Kenya (CBK) to abandon its plan to create a new Fast Payment System (FPS) from scratch and instead improve Pesalink, a payment platform owned by the banks. In a letter sent to the CBK on October 25, 2024, the Kenya Bankers Association (KBA) argued that enhancing Pesalink would be a faster, more cost-effective way to achieve the regulator’s goal of seamless real-time payments.
“This would see IPSL transition to a national switch, with substantive changes in ownership, governance, technology, and business model to include CBK, banks, Safaricom, Kenswitch, and other licensed payment participants,” said John Gachora, KBA chairman and NCBA Bank CEO.
CBK’s Plan for a National Fast Payment System
The FPS, announced by CBK on October 18, 2024, aims to create a unified platform enabling instant transactions across banks and licensed payment service providers. However, CBK has not disclosed a timeline for the rollout, prompting concerns about speed and cost among banks.
Banks’ Counterproposal
KBA’s letter outlines why upgrading Pesalink is a better alternative:
- Speed of Execution: Pesalink already exists, making it faster to scale and integrate with financial institutions.
- Cost Efficiency: Upgrading Pesalink would reduce expenses for developing a new system and minimize disruptions for banks and customers.
- Seamless Integration: A revamped Pesalink could connect banks, fintechs, mobile money operators, and other payment platforms.
Kenya’s Fragmented Payment Landscape
Kenya’s payments ecosystem is characterized by fragmentation:
- Mobile Money Platforms: Dominated by M-Pesa and Airtel Money, these operate in silos and do not fully integrate with all financial institutions.
- Pesalink: A peer-to-peer payment platform connecting 39 KBA member banks but lacks interoperability with fintechs and mobile wallets.
- Card Payments: Merchants often juggle multiple systems for card payments, mobile wallets, and bank transfers.
Limitations in the Current System:
- Mobile Money Restrictions: Transfers to certain wallets, such as Airtel Money, are unavailable for some banks and microfinance institutions.
- Pesalink’s Scope: Pesalink does not support payments to mobile money wallets, limiting its appeal as a comprehensive solution for digital payments.
Why a Unified Payment System Matters
A unified Fast Payment System (FPS) could address these challenges by enabling:
- Instant Cross-Platform Transfers: Connecting banks, mobile money platforms, and fintechs.
- Streamlined Merchant Payments: Allowing businesses to consolidate all digital payments into a single account, akin to card payment systems.
- Improved Access: Ensuring inclusivity for customers across all financial service providers.
The Mobile Money Factor
Mobile money dominates Kenya’s payments market, processing $300 billion in 2024, far outpacing traditional methods like:
- Cheques: $15.4 billion.
- Real-Time Gross Payment System: $21.6 billion.
Challenges Ahead for CBK’s FPS
While the CBK’s FPS could revolutionize the payment ecosystem, commercial banks argue that starting from scratch would be unnecessarily complex and disruptive.
KBA’s Vision for Pesalink:
- Transition Pesalink into a national payment switch, with expanded governance to include:
- CBK
- Safaricom
- Kenswitch
- Licensed payment participants.
Conclusion
Kenyan banks believe that upgrading Pesalink provides a pragmatic approach to achieving the CBK’s vision of a seamless payments ecosystem. While the CBK’s FPS could transform the market, leveraging an existing platform like Pesalink may offer faster, cheaper, and less disruptive results.
As Kenya works to unify its payment systems, addressing the concerns of commercial banks while ensuring inclusivity across all players—banks, fintechs, and mobile money operators—will be key to creating a robust financial ecosystem.