The Central Bank of Kenya (CBK) is set to introduce a financial sector-wide interoperability system, which will make sweeping changes in the country’s financial system. This development is set to change Kenya’s banking sector significantly. At its core, this new system will allow users to send and receive money instantly, regardless of the bank or financial institution they use. This is a significant shift from the current system, where transferring money between different banks can be slow, costly, and sometimes complicated. This will be made possible through the creation of a Fast-Payment System (FPS), integrating various payment services offered by banks and Payment Service Providers (PSPs). Essentially, in addition to customers being able to send and receive money from anyone, anytime and anywhere, this will remove the barriers created by bank-specific payment systems.

The CBK has emphasised that this initiative is part of a broader plan to promote efficiency in Kenya’s payment systems. By simplifying how people make financial transactions, the solution is expected to accelerate financial inclusion, enhance innovation, and improve customer experiences. This follows several consultations between key players in the financial industry, including the CBK, Kenya Bankers Association (KBA), and PSPs since early 2024. For the average bank customer, this system promises significant benefits: faster transfers, lower costs, and more convenience. 

For Kenya’s banks, this move introduces both opportunities and challenges. On one hand, the introduction of FPS could significantly improve customer experience by making transactions faster and more convenient. Additionally, this will eliminate the need for complicated bilateral agreements between banks, leading to cost savings. Banks are also likely to witness increased transaction volumes as sending money becomes easier, potentially leading to new revenue streams from transaction fees, albeit at lower rates per transaction. 

On the other hand, banks will need to adapt to an increasingly competitive environment. As all banks will have access to the same payment infrastructure, the ability to differentiate based on transfer systems will diminish. To stay competitive, financial institutions will need to innovate in other areas, such as customer service, product offerings, and digital platforms. This could spur more competition in the creation of value-added services that go beyond simple payment solutions.

One of the key objectives of this initiative is to enhance financial inclusion, especially among individuals and businesses that have historically been underserved by the banking sector. By allowing seamless transfers between different financial service providers, the FPS could lower the barriers to entry for small businesses and individuals who may not have access to traditional banking services. Mobile money services like M-PESA, which have been a crucial part of Kenya’s financial landscape, could become even more impactful with the FPS, as it better integrates them with traditional banking systems.

Further, by making financial services more accessible, the interoperability solution could empower more entrepreneurs, driving economic growth at the grassroots level. The CBK’s initiative also complements existing efforts to promote digital payments in Kenya, aligning with the broader goals of the National Payments Strategy 2022–2025, which aims to enhance financial inclusion, innovation, and security in Kenya’s financial system.

The CBK will provide further updates on the timeframe for the launch of the FPS; however, the transition will not be without challenges. Banks will need to manage the technical complexity of integrating with the new system while maintaining their existing services. They will also need to train staff, update procedures, and possibly restructure some of their operations to align with the new system’s capabilities. This initiative also signals a shift in how banking services are viewed – moving from a competitive, closed system to a more collaborative, open infrastructure. Banks will need to adjust their business strategies to thrive in this new environment, focusing more on value-added services rather than basic payment processing. In conclusion, the CBK’s Fast-Payment System represents a significant milestone in Kenya’s financial sector development.