Kenyan commercial banks are expressing their concerns over the Central Bank of Kenya’s (CBK) recent proposal to create a new real-time payments system from scratch. Instead, they are advocating for an upgrade to Pesalink, a payment platform already in use. The banks argue that enhancing Pesalink would save time, reduce costs, and minimize disruptions for users.
In a letter addressed to the CBK, the Kenya Bankers Association (KBA) emphasized that improving Pesalink, owned by the association through its fintech arm, Integrated Payment Services Limited (IPSL), is the most efficient and economical way to achieve the CBK’s goal of establishing a seamless Fast Payment System (FPS).
John Gachora, KBA chairman and CEO of NCBA Bank, pointed out that transitioning Pesalink into a national switch would require significant changes in ownership and governance. This would involve collaboration with key players such as CBK, banks, Safaricom, Kenswitch, and other licensed payment service providers.
The CBK announced its FPS plan on October 18, 2024, aiming to facilitate instant transactions across all financial institutions. Although no launch date has been set yet, banks are eager for a quick rollout. They stress that speed and cost-efficiency are critical for the success of this initiative.
“In establishing a successful FPS,” Gachora stated, “we must consider how quickly we can connect all market players and the associated costs for setting it up.”
Currently, Kenya’s payments ecosystem is somewhat fragmented. Mobile money platforms like M-Pesa and Airtel Money operate separately from traditional banks. While mobile money allows for quick transfers between banks and digital wallets, it often requires specific agreements between institutions. For example, some banks do not permit transfers to Airtel Money wallets, creating barriers for customers.
Pesalink facilitates peer-to-peer transfers among KBA’s 39 member banks but struggles with integration into the broader fintech landscape. Users cannot send payments directly to mobile money wallets, which limits its effectiveness as a comprehensive digital payment solution.
This fragmentation complicates matters for businesses that want to consolidate their payment processes. They often find themselves juggling multiple systems for card payments, mobile wallets, and bank transfers. A unified payment system like the proposed FPS could allow merchants to accept all forms of digital payments into one account, streamlining operations significantly.
Despite these challenges, mobile money remains dominant in Kenya’s payments market. In 2024 alone, mobile money transactions exceeded $300 billion, far surpassing traditional methods like cheques and real-time gross payment systems.
The introduction of a unified national platform for instant transactions could be a game-changer. The FPS aims to connect every part of Kenya’s financial ecosystem, from banks to mobile wallets to fintechs, allowing for real-time cross-platform payments.
As discussions continue between the CBK and commercial banks, the focus remains on how best to enhance Kenya’s payment systems in a way that benefits all stakeholders involved. The outcome could reshape the future of financial transactions in the country.
