For fintech startups expanding to Kenya, nothing is more difficult than getting an operating licence.
A payment service provider (PSP) licence may take up to two years due to approval delays, forcing startups to use workarounds such as partnerships with telcos, banks and mobile money providers.
“We don’t enable services that we can’t do without a licence, but what we do in Kenya is connect licenced parties,” Rachael Balsham, East and Southern Africa MD at fintech Onafriq told TechCabal at last week’s Africa Fintech Summit in Nairobi.
“Safaricom’s M-PESA is licenced to run mobile money services, and we connect them to other licenced parties.” Onafriq allows businesses to send and receive money across 40 African countries but is only licenced in 12, excluding Kenya.
The slow pace of licencing in Kenya is a major roadblock for fintechs looking to set shop in the East African country.
While the Central Bank of Kenya (CBK) has talked up legal reforms to fast track fintech licencing, high market entry barriers and evolving regulations have derailed progress, which has allowed traditional players like commercial banks and telcos to remain dominant.
“We are in the process of updating and amending the Payments Act, basically coming up with a new act. We hope to be able to finish that soon and also the regulations and that would guide our way forward in terms of payments service providers space,” Kamau Thugge, CBK governor, told TechCabal in June.
“The CBK currently doesn’t have the capacity for thorough due diligence before issuing licences to hundreds of fintechs that have set up shop in Kenya,” said a fintech co-founder who asked not to be named.
The CBK did not immediately respond to a request for comments.
This problem could be fixed through licence passporting for established fintechs, according to Balsham.
“Licence passporting” is a regulatory mechanism that works as a passport for fintech companies. It allows them work in different countries within a region without needing separate licences for each.
Imagine you have a driver’s licence issued in Kenya. With “licence passporting”, you could drive your car in other countries in Eastern or Southern Africa without applying for a separate driving licence from each country. No African country has adopted licence passporting.
“If adopted, it could make it easier for them to offer their services across borders, which can lead to lower prices, better products, and more choices for customers,” one banking lawyer told TechCabal.
