Payment systems have come a long way. From the cowry-based exchange that featured thousands of years ago, trade today is underpinned by intricate domestic, regional and international networks, which continue to evolve and adapt to emerging technologies. All these advancements have made trade faster, cheaper, safer and more transparent.
Kenya’s payments system has also evolved over time and now operates within robust regulatory and monitoring frameworks, which include the Central Bank Prudential Guidelines, the National Payment System Act, and the Proceeds of Crime and Anti-Money Laundering Act.
Furthermore, the establishment of the Financial Reporting Centre (FRC) reinforces the respective roles of the Central Bank of Kenya (CBK), the Ethics and Anti-Corruption Commission (EACC), the Office of the Director of Public Prosecutions (DPP), and the police service in oversight and addressing illicit flows of funds.
As much as we have seen lapses within the payments system, a robust framework is in place. The problem lies in misuse of the system; which is why several measures have recently been put in place to ensure that the system works. Chief among the enhancements is the elimination of cash payments. The CBK introduced guidelines on handling cash transactions above Sh 1 million, and recently Kenya Bankers Association issued guidelines to its member banks and microfinance institutions providing cash transaction limits and approval levels required for bulk cash transactions.
The limits are meant to reinforce the CBK’s existing guidelines on handling cash transactions above Sh1 million. This industry move will provide regulators with information that will enhance the integrity of the payments system. It will also motivate customers to utilise existing digital payment platforms, including RTGS, and the CBK’s real-time gross settlement system that is used for same-day payments over Sh1 million.
Peer-to-peer platforms introduced by the industry include PesaLink, a 24-hour bank-to- bank account platform that enables customers to move up to Sh999,999 any day of the week. There are other mobile platforms such as M-Pesa, T-Kash and Airtel Money that have integrated with the banking system for enhanced convenience for customers. Global payments solutions providers like Visa and Mastercard come up with innovative cross-platform products.
With all these digital options, and considering Nairobi is the world capital for mobile payment innovation, why would we hang on to cash? Digital payments are preferred because of convenience, reduced transactional cost, and speed of execution — compared to manual or cash-handling processes.
Digital payments also enable integration with organisational information systems which can help increase efficiency and minimise risks. Take for example the government system. The various ministries procure thousands of products and services each day.
These all have to be procured, tracked and payments must be made in a manner that is efficient and transparent. By utilising IFMIS (Integrated Financial Management Information System), the Treasury is able to leverage on a robust technological tool to run the entire public financial management process. IFMIS interlinks planning, budgeting, expenditure management and control, accounting, audit and reporting. The data generated from the system also enhances the regulators’ oversight, aiding in detecting corruption.
In countries like Nigeria and Sweden, public-private sector collaborations have been embraced to increase efficiency and ensure that systemic risks are mitigated through analysis of the data generated from digital public services. Kenya has also made strides with the e-Citizen platform which, once fully mature in capacity, will create tremendous value in how citizens interact with government.
In Sweden, only two per cent of their transactions are cash-based. In Kenya, 94 per cent of our transactions are in cash. Sweden intends to fully eliminate cash in the next five years, with plans to introduce a national digital currency. As much as public-private sector interaction and trade have been accelerated by digital technology innovations, there are inherent risks, including cyber security concerns. Therefore, policymakers must consider the most secure options. An emerging approach that so far is considered one of the most secure methods is blockchain, which is based on Distributed Ledger Technology (DLT).
Blockchain systems have the potential to provide new ways of transferring and recording information, as well as facilitating the exchange of value (or trade) in a way that ensures the integrity of the ecosystem within which the transaction is taking place. Because information stored or moved within the system is immutable or cannot be manipulated without a consensus among the parties, DLTs are gaining traction with governments, banks and other private sector players incubating use cases of the technology.
Ghana and Rwanda, for example, are making strides towards transitioning their land registries to blockchain.
Seboru is the Senior Officer of Technology Services at Kenya Bankers Association [email protected]