Kenya Central Bank Outlining Open Banking Ambitions

Kenya Central Bank Outlining Open Banking Ambitions

The Central Bank of Kenya (CBK) has released a draft document outlining a five-year digitalization plan to modernize the country’s domestic payment landscape. The document, titled Kenya National Payments System Vision and Strategy 2021 – 2025 and released in December 2020, stresses the regulator’s commitment to establishing a regulatory landscape that’s conducive to innovation, as well as embracing open banking and APIs, among other key areas of focus.

In the document, the CBK says it will work to define standards for API development and mandate data portability with hopes that more options and innovative solutions will be made available for users in Kenya to choose from.

These standards will include API specifications for identification, verification and authentication; customer account information/data access; transaction initiation; and formats and coding languages for APIs, it says.

“The use of secure APIs by digital financial providers makes it easier for third parties, mainly fintechs that offer tailored, innovative solutions, to connect in a seamless, fast and secure self-service manner,” the document reads. “This enables end users to have access to a wider range of relevant and easily usable products.”

To address the risk associated with opening up data from financial institutions to third-parties, the CBK says it will “define clear risk management frameworks and standards, including providing clarity on liability and consumer protection.”

The central bank says the National Treasury and Planning is currently finalizing a so-called Digital Finance Policy, which will be articulated around four main strategic objectives: developing an open infrastructure; ensuring consumer protection; installing proper financial system regulation, and nurturing future development.

Upgrading Kenya’s payment infrastructure

The five-year plan introduced in December 2002 aims to upgrade Kenya’s payment infrastructure to address the paradigm shift towards digitalization of the economy, a trend that has accelerated with the pandemic.

Since Kenya confirmed its first COVID-19 case in March 2020, the country has witnessed a surge in mobile and digital payments with peer-to-peer (P2P) payment volumes increasing by 87% between February and October 2020, and 2.8 million people becoming mobile payment users for the first time during COVID-19 outbreak, the central bank says.

To address the rapidly changing financial services landscape, the CBK says the new national payment system should allow for more efficient, cost-effective and faster 24/7/365 payments. It should be interoperable with other payment systems and should come with an effective complaints mechanism. Also, end users should be given a wide range of services and providers to choose from, with competition expected to introduce new, more affordable and innovative payment solutions.

When fully implemented, the five-year plan will act as the foundation for developing Kenya’s overall payments industry, the central bank says, a key component within the country’s broader ambition to becoming a digital, cash-lite and 24/7 economy.

Kenya launched its Kenya Vision 2030 in 2008, which seeks to help transform the country into a “newly industrializing, middle-income country providing a high quality of life to all its citizens by 2030 in a clean and secure environment.”

The strategy focuses on reforms and development across ten key sectors including infrastructure; science, technology and innovation; the public sector; trade; and financial services.

Kenya: Africa’s most successful mobile money sector

Kenya has the largest and most successful mobile money sector in Africa, according to a report produced by the World Bank Group and released in April 2020.

The country has consistently led the continent both in scale and innovation, and is the birthplace of M-Pesa, a widely successful mobile phone-based money transfer service, payments and micro-financing service launched in 2007.

Since its inception, M-Pesa has evolved from a basic SIM card-based money transfer application into a fully-fledged financial service platform, offering loans, savings as well as merchant payments services.

The service has helped drive formal financial inclusion to over 80% of the population in Kenya in 2019, the highest in Africa. As of December 2019, the country had 58.3 million mobile wallets, representing 1.7 mobile wallets for every adult.


Featured image credit: Edited from Pixabay




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