The Central Bank of Kenya (CBK) unveiled its National Payments Strategy for 2022 – 2025 (NPS Strategy) this week. The NPS Strategy is anchored on the vision of a secure, fast, efficient and collaborative payments system that supports financial inclusion and innovations that benefit Kenyans. The strategic initiatives that CBK seeks to pursue are grounded on five principles, namely; Trust, Security, Usefulness, Choice, and Innovation. In this first part of a series, we examine the strategic initiatives outlined under the principle of Trust.

To foster trust in our national payments system, CBK is looking to have a system that guarantees that payments will be made and received in a timely and reliable manner. To this end, CBK seeks to implement the following strategic initiatives:

Adoption of relevant common standards

CBK will work with industry stakeholders to facilitate the adoption of common standards and principles across a range of topics that are essential for enhancing trust among participants and, more critically, between Payment Service Providers and customers.

This initiative is geared towards addressing the following challenges:

• Customers lack adequate assurance that payments will reach the intended recipients at the right time, thereby reducing their willingness to use digital payment services regularly.
• Frequent system failures and channel downtime cause delayed payment, reducing the chance a user will trust that channel next time.
• Lack of sufficient assurance that businesses are making payments to the correct account, especially for high-value and time-critical payments.
•  As with customers, system failures and channel downtime affect businesses’ confidence in the use of digital payment services.
• Cyber threats pose significant threats in terms of cybercrime and online fraud. This inhibits the uptake of digital payments and its ability to facilitate e-commerce.

Promote the integration of digital identity

CBK will work with industry and government agencies to facilitate the integration of digital identity to facilitate electronic Know Your Customer (KYC) systems. It is expected that this will improve trust and secure customer identification and verification processes, and strengthen AML/CFT oversight.

This initiative is expected to cure the following challenges:

• Fraud such as socially engineered fraud, SIM swap fraud and identity theft targeted at customers.
• High incidences of fraud, particularly in mobile money and card payments, significantly raise risks and operating costs to businesses.
• The government’s inability to promptly, correctly and cheaply confirm the identity of a beneficiary is likely to accelerate due to the increased use of digital and mobile payments in the wake of the COVID-19 pandemic.

Customer protection framework tailored for digital payments

CBK will develop a robust framework for digital payments customer protection to address customer protection issues in digital payments services. This will include harmonising existing frameworks or developing new frameworks where necessary.

This initiative is expected to remedy an insufficient and ineffective complaints recourse process. Existing processes are unclear or complex due to various customer protection frameworks. Further, no recourse mechanism has yet been purpose-built for digital payments.

Data protection framework tailored for digital payments

CBK will facilitate the development of a framework for financial data protection. The Data Protection Act, 2019, provides the broad framework for handling and protecting users’ data. In 2020, further regulations were drafted to operationalise the Act. From a payment perspective, CBK will seek to see the emergence of a comprehensive framework that is tailored for digital payments and in line with CBK’s payments mandate.

This initiative is expected to address the challenge of adequate capacity in effective data protection. Institutions will require significant capacity to enable customers to realise the intended benefits.

Enhance customer awareness among digital payment users

CBK will develop tailored approaches for customer education. CBK will work with relevant agencies and industry players to develop effective and usable financial education and customer awareness framework and content.

This initiative is expected to address the issue of limited financial literacy among users that undermines trust as users are easily affected by fraud and scams.

Align tariff setting practices to Pricing Principles

CBK will continue to roll out the Pricing Principles to enhance customer focus in the pricing of digital services. The primary aim will be to ensure that tariffs and pricing policies and practices are underpinned by principles such as transparency, disclosure, cost-effectiveness and customer-centricity.

This initiative is expected to address the limited transparency in tariff setting practices that affects customers’ willingness to use digital payment services. This further impacts trust as they fear hidden costs.

What Industry participants can expect moving forward

It is anticipated that CBK will review the NPS legal and regulatory framework to implement and monitor its strategic initiatives. PSPs (including mobile money), banks, SACCOs, fintech, and business organisations need to anticipate and align their systems and processes to global best practice to ensure compliance.

The NPS Strategy presents an opportunity for industry participants to leverage the strategic initiatives and position themselves as the leading businesses in the digital payments landscape.