The Central Bank of Kenya (CBK) plans to issue payment licences to fintech startups, signalling a significant shift that will open up East Africa’s largest payments market. Among the fintech companies hoping to benefit from this are Flutterwave and Chipper Cash.
Payment Licences Regulatory Framework Update
CBK Governor Kamau Thugge announced that the regulator is working diligently to amend the National Payment Systems Act of 2011, providing a legal framework for fintech firms to operate. The proposed changes could be a significant win for remittance and payment providers, who have faced investigations and raids by Kenyan authorities over allegations of money laundering.
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“We are updating and amending the Payments Act, basically coming up with a new act. We hope to be able to finish that soon, as well as the regulations, which would guide our way forward in terms of payments service providers space,” said Thugge during a post-monetary policy committee (MPC) press briefing.
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Kenya’s financial sector is currently regulated under the Central Bank of Kenya Act, the National Payment Systems Act, the National Payment Systems Regulations of 2014, and the e-money Regulations of 2013.
These regulations have been unclear about the status of fintechs, creating a legal grey area that has slowed down their expansion and allowed commercial banks and telcos to dominate.
The lack of clarity has conflicted with remittance and payment startups with Kenyan authorities. Law enforcement agencies, including the Financial Reporting Centre (FRC) and the Asset Recovery Authority (ARA), have frozen accounts and seized assets of fintech sector players on money laundering charges.
Previous Regulatory Actions
In 2022, CBK ordered local financial institutions, including banks and mobile money service providers, to sever ties with fintechs, citing unspecified threats to the country’s financial systems. The regulator stated that these firms were operating without authorisation, further complicating the operational landscape for fintech startups.
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The proposed amendments to the National Payment Systems Act aim to provide a clear legal pathway for the registration and licensing of fintech startups. This move could resolve the regulatory uncertainties that have hampered the growth of fintech companies in Kenya, enabling a more inclusive and competitive financial sector.
The CBK’s initiative could foster innovation and growth within the fintech industry by easing regulatory constraints and providing a structured framework. This development is anticipated to enhance the role of fintechs in driving financial inclusion and providing innovative payment solutions across Kenya and East Africa.
Governor Thugge’s commitment to revising the regulatory framework highlights CBK’s recognition of the importance of fintechs in the modern financial ecosystem and their potential to contribute significantly to the country’s economic growth.