Kenyan commercial banks are rallying against the Central Bank of Kenya’s (CBK) plan to create a new real-time payment system (Fast Payment System, or FPS), urging instead for an upgrade to the existing Pesalink platform. Banks argue that building on Pesalink would save time, reduce costs, and minimize disruptions across the financial ecosystem.
Bankers Urge CBK to Leverage Pesalink
In a letter dated October 25, 2024, the Kenya Bankers Association (KBA) proposed that CBK transform Pesalink into a national payment switch. The platform, currently owned by KBA through its fintech subsidiary Integrated Payment Services Limited (IPSL), connects 39 member banks but has limited integration with fintechs and mobile money platforms.
John Gachora, KBA chairman and CEO of NCBA Bank, outlined the benefits of upgrading Pesalink:
- Faster implementation compared to developing a new system from scratch.
- Cost-efficiency for both development and integration.
- Enhanced governance and inclusion of all key stakeholders, including CBK, banks, Safaricom, Kenswitch, and licensed payment providers.
CBK’s Vision for a Unified Payment System
On October 18, CBK announced its plan to develop the FPS, a system designed to enable instant transactions across all financial institutions and licensed payment service providers. While no timeline has been shared, CBK aims to eliminate the current fragmentation in Kenya’s payments ecosystem.
Kenya’s payment landscape is largely divided:
- Mobile Money Platforms: Services like M-Pesa and Airtel Money dominate, but their limited agreements with banks create silos.
- Pesalink: Offers peer-to-peer bank transfers but lacks interoperability with mobile wallets and fintech platforms.
- Fragmented Payment Processes: Businesses must manage multiple systems, complicating operations and customer transactions.
A unified FPS could address these issues by enabling cross-platform payments, allowing merchants to receive funds from various channels into a single account—streamlining operations and improving financial inclusion.
Market Context and Challenges
- In 2024, mobile money processed over $300 billion, dwarfing traditional methods like cheques ($15.4 billion) and Real-Time Gross Settlement ($21.6 billion).
- Despite its dominance, mobile money’s siloed structure limits integration with smaller banks and fintechs.
- Pesalink offers a foundation but lacks comprehensive coverage, preventing it from serving as an all-encompassing digital payment solution.
What’s Next?
Commercial banks are advocating for CBK to prioritize cost and speed in creating a seamless payment system. Gachora emphasized, “Speed of execution and affordability are critical to successfully launching an FPS that benefits all players in the market.”
If CBK opts to upgrade Pesalink, it would require significant changes to ownership, governance, and technology to integrate banks, fintechs, and mobile money providers. However, CBK’s commitment to building a unified FPS from the ground up could redefine Kenya’s payments landscape, enabling real-time, cross-platform transactions for all.
Key Takeaway
With mobile money dominating Kenya’s payments sector and an urgent need for interoperability, the decision to upgrade Pesalink or create a new FPS will shape the future of financial inclusion and digital payments in the country.
Stay tuned for updates on CBK’s FPS rollout and its impact on Kenya’s financial ecosystem.
