CBK payment strategy needs strong Sacco voice

The Kenyan payments landscape has had innovations, making the country the heartbeat of Fintech creations and the reference point for other countries.

Yet again we are at the precipice of another first one in the form of the Central Bank Digital Currency which is the crux of the matter in the recently released Kenya’s National Payment Strategy 2022-2025.

This development and strategy is so revolutionary as its implementation will call for a review of the National Payment System, amendment of laws and a change in supply-side structures in the mobile money sector, the most notable one being reduction in transactional fees and the requirement that Lipa na M-Pesa be opened to receive payments from other mobile wallets as has been done.

However, one of the critical pitfalls of the current national payment system is the fact that it was built on the assumption that commercial banks were the only intermediaries.

This is best seen in the Nairobi Automated Clearing House, which is a member-only institution, drawing its membership majorly from commercial banks and housed by the CBK to the exclusion of other emerging intermediaries and their attendant regulators.

Indeed, this was the case before the advent of Sacco regulations in 2008 and the commercial launch of M-Pesa in 2007.

There is an increased trust tied to stricter regulatory guidelines that enable Saccos to be more stable and be better managed.

Indeed, as at end of the year 2020, the Sasra 2021 annual report states that the sector was home to 175 deposit-taking Saccos, 5.47 million members, asset base of Sh627.68 billion, deposit base of Sh431.36 billion, and a loan book of Sh474.77 billion.

It is important that Kenya’s payments strategy be demystified and not remain a member’s club, making it and making the National Payment System more consumer-centric and less customer-centric.

It may seem inconsequential, but if you consider the difference between a consumer and a customer, a critical and fundamental truth starts to emerge.

Consumers are the users of goods and services. Customers are those who purchase goods and services — could be to resell or sometimes to use. Thus, a consumer-centric approach will start at the need and work towards meeting it.

The biggest customers of the CBK are banks, microfinance banks, forex bureaus and the national payment strategy seems to have been written to serve these customers. Is this another opportunity to revisit the muted Unified Financial Services Authority discussion?

The CBK discloses the stakeholders involved in the generation of the document in which SASRA is conspicuously missing, but probably lumped under the nine government MDAs.

The response rate from the survey was 71 percent and it included feedback from 35 commercial banks, 11 microfinance banks, three mobile money providers, eight fintechs, nine government ministries, departments and agencies (MDAs), 14 money transfer operators, 3 deposit taking Saccos, two citizen associations and three industry associations.

Out of 175 deposit-taking Saccos registered, only three were invited to the process compared to 35 banks out of the total 42 banks representing 83.3 percent.

Not to belabor the point, but observe a similar treatment of the Communications Authority of Kenya (CA) which is only mentioned twice in the document, again not as a driver of growth and the regulator of the M-Pesa revolution but as a mere stakeholder.

In the spirit of continuous improvement, we think there is room and need to subject the strategy document to the Sacco sector to ensure it is not locked out of the National Payment System.

Legal tender

In theory, a truly consumer-centric National Payment Strategy should be demand-driven and not supply-driven as this CBK generated National Payment Strategy 2022-2025 seems to be.

We should be looking at a model where the CBK digital currency becomes the legal digital tender. Then let’s have all other stakeholders treated as intermediaries with varying responsibilities and abilities.

For example, under the digital currency as the only legal digital tender, banks and Saccos become licensed deposit-taking intermediaries while telcos become licensed, transaction-only intermediaries.

Davis Kambale Tayo, managing partner, Africa Social Financing Centre