Kenyan commercial banks are opposing the Central Bank of Kenya’s (CBK) plans to develop a new real-time payments system from scratch, advocating for an upgrade to Pesalink instead. They argue that improving the current system would save time, cut costs, and minimise disruptions.
In a letter seen by TechCabal, the Kenya Bankers Association (KBA) urged CBK to build on Pesalink, the payment platform owned by the association through its fintech subsidiary, Integrated Payment Services Limited (IPSL). The October 25, 2024 letter argues that leveraging Pesalink would be the fastest, cost-effective route to achieve the regulator’s goal of creating a seamless Fast Payment System (FPS).
“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 that the CBK would like incorporated,” said John Gachora, KBA chairman and CEO of NCBA Bank.
On October 18, CBK unveiled its plan to develop the FPS, a system designed to enable instant transactions across all financial institutions, including banks and licensed payment service providers. While CBK has not announced a launch date, commercial banks are pushing for a swift rollout, arguing that speed and cost-efficiency are critical to success.
“In setting up a successful FPS, due consideration will need to be given to: the speed of execution to create the FPS and connect all players in the market, the costs to create it, and for the various players to configure their systems and operations to enable seamless transactions,” Gachora said.
A fragmented payments landscape
Kenya’s payments ecosystem is currently fragmented, with mobile money platforms like M-Pesa and Airtel Money operating in silos from other financial institutions. While mobile money allows instant transfers between Kenyan banks and digital wallets, it remains limited to institutions that have agreements with providers. For example, some banks and microfinance institutions do not allow transfers to Airtel Money wallets, creating barriers for customers.
Meanwhile, Pesalink offers P2P transfers among KBA’s 39 members, but it has significant limitations in integrating with fintechs and mobile money providers. Pesalink users, for instance, cannot make payments to mobile money wallets, which restricts its use as a comprehensive solution for digital payments.
This fragmentation has made it challenging for businesses to consolidate payments into a single account, as they must manage multiple systems for card payments, mobile wallets, and bank transfers. A unified payment system like FPS would allow merchants to accept all forms of digital payments into a single account, similar to how card payments work across platforms.
Mobile money dominates but remains isolated
Despite the challenges, mobile money continues to dominate Kenya’s payments market. In 2024, mobile money processed over $300 billion, outpacing traditional methods like cheques ($15.4 billion) and the Real-Time Gross Payment System ($21.6 billion).
By creating a unified national platform for instant transactions, CBK’s FPS could be a game-changer, offering real-time, cross-platform payments that connect every part of the financial ecosystem, from banks to mobile wallets to fintechs.
