Safaricom and the Kenya Bankers Association (KBA) have raised significant concerns over the Central Bank of Kenya’s (CBK) plan to build a Fast Payment System (FPS) from scratch, citing a potential $200 million (KES25.9 billion) cost and a lengthy four-year timeline.
The FPS, proposed to enhance payment interoperability and reduce transaction costs, has sparked debate about its feasibility and necessity. Both Safaricom and KBA argue that upgrading existing infrastructure like Pesalink and M-Pesa could achieve similar results at a fraction of the cost and time, while minimizing disruption to Kenya’s advanced payment ecosystem.
Key Concerns Raised by Safaricom and KBA
1. Duplicative Infrastructure
The joint report by Safaricom and KBA suggests that the FPS risks duplicating existing systems like Pesalink, which already enables peer-to-peer bank transfers, and M-Pesa, which handles billions in mobile money transactions annually.
2. High Costs and Lengthy Timelines
The estimated $200 million price tag and four-year implementation timeline are seen as excessive. Safaricom and KBA propose enhancing existing systems as a cheaper and faster alternative.
3. Special Purpose Vehicle (SPV) Model
The proposed SPV, which would oversee the FPS and be owned by:
- CBK (60%)
- Safaricom (20%)
- Commercial Banks (20%)
This structure raises concerns over:
- Bureaucratic delays: Safaricom and KBA warn that state ownership under CBK could slow innovation and decision-making.
- Legislative hurdles: Establishing the SPV would require amendments to multiple regulations, delaying benefits for the payments landscape.
4. Mobile Money Suitability
Kenya’s payment landscape is predominantly digital and mobile-based, with platforms like M-Pesa and Airtel Money dominating. The FPS model, inspired by cash and card-centric systems in other countries, may not align with Kenya’s mobile-first ecosystem.
Safaricom and KBA’s Alternative Proposal
The report recommends enhancing existing systems like Pesalink and broadening their ownership to include:
- CBK
- SACCOs
- Microfinance banks
- Other payment service providers (PSPs)
This model would mirror Zimbabwe’s approach, where an existing system was upgraded instead of building a new one.
Challenges in Kenya’s Payment Landscape
Kenya’s payment infrastructure remains fragmented, with mobile money platforms operating independently of banks and other financial institutions. This creates inefficiencies, as separate agreements are required to connect services like:
- Pesalink (banks-only)
- M-Pesa and Airtel Money (mobile platforms)
While an FPS could bridge these silos, experts warn that creating a new system could disrupt existing operations and innovation.
Expert Perspectives on FPS
Payment experts acknowledge the potential benefits of an FPS but warn about unintended consequences:
- Opportunities for smaller players: Lower transaction costs could enable smaller PSPs to enter the market.
- Higher entry barriers: Increased regulatory requirements and costs could discourage new entrants.
- Innovation drive: Both small and large players would need to innovate to remain competitive.
“It will create opportunities for smaller players but could also raise entry barriers for them. It will drive innovation in Kenya’s payments industry, with both small and large service providers pushed to offer better solutions,” said Alfred Ongere, former Payless Africa CTO.
What’s Next?
The CBK has yet to clarify whether it will pursue the SPV model or upgrade existing infrastructure. However, further guidelines are expected in the coming months.
The FPS debate underscores the delicate balance Kenya must maintain to preserve its global leadership in mobile and digital payments while pursuing greater interoperability and inclusivity.
Conclusion
Safaricom and KBA’s recommendations highlight the importance of leveraging existing systems like Pesalink and M-Pesa to achieve interoperability and reduce costs efficiently. As Kenya continues to evolve its payment systems, stakeholders must prioritize innovation, inclusivity, and cost-effectiveness to sustain its leadership in the global financial landscape.
The path CBK chooses will significantly impact Kenya’s financial ecosystem, shaping the future of payments for millions of consumers and businesses.