Could The CBK’s FPS Transform Digital Payments In Kenya Like India’s UPI Has Done?

Kenya has long been a global leader in mobile money and digital payments, driven by Safaricom’s M-PESA, which boasts over 34 million subscribers as of November 2024. M-PESA has revolutionized financial inclusion, offering unparalleled convenience and accessibility. However, this dominance has created challenges around interoperability, competition, and cost for consumers and businesses alike.

To address digital payment issues in Kenya, the Central Bank of Kenya (CBK) is developing a Fast Payment System (FPS) to integrate banks, mobile money platforms, and other financial service providers into a seamless, interoperable digital payments ecosystem. This initiative aligns with the CBK’s National Payments Strategy 2022–2025, which aims to realize a secure, efficient, and inclusive digital payments infrastructure for Kenya.

Drawing on lessons from India’s Unified Payments Interface (UPI) and its domestic card network, RuPay, Kenya’s FPS could be a game-changer for financial inclusion, competition, and innovation. This blog post explores the challenges facing Kenya’s digital payments landscape, the transformative potential of FPS, and the potential role of global disruptors like Google Pay and WhatsApp Pay in shaping the future.

M-PESA’s Dominance: Strengths & Challenges

M-PESA has become synonymous with mobile money in Kenya, holding a 93.4% market share as of June 2024. This dominance is built on:

• First-Mover Advantage: M-PESA was the first mobile money platform in Kenya, capturing the market early.
• Extensive Agent Network: Over 600,000 agents ensure M-PESA is accessible across Kenya, including rural areas.
• Wide Integration: M-PESA is integrated with countless businesses, government services, and financial institutions, making it a default for digital payments.

However, this dominance poses significant challenges:

1. Limited Competition: Airtel Money, the second-largest player, holds only 6.6% market share, making it difficult for alternatives to thrive.
2. High Costs: M-PESA transaction fees can be prohibitive for small businesses and low-income users.
3. Interoperability Gaps: Lack of seamless integration with other platforms restricts consumer choice and increases friction in digital payments.

While M-PESA’s contributions to financial inclusion are commendable, these challenges highlight the need for greater parity and competition in Kenya’s digital payments ecosystem.

India’s UPI & RuPay: Lessons for Kenya

India’s digital payments revolution, led by UPI and RuPay, offers a blueprint for addressing Kenya’s challenges.

Unified Payments Interface (UPI)

Launched in 2016 by the National Payments Corporation of India (NPCI), UPI has become a cornerstone of India’s digital economy. Key features include:

• Real-Time Interoperability: UPI integrates banks, wallets, and fintechs, allowing seamless transactions across platforms.
• Low Costs: Transactions are nearly cost-free for consumers and merchants, driving mass adoption.
• Ease of Use: QR codes and user-friendly interfaces have democratized access to digital payments, even in rural areas.
• Scale: UPI processed over 9 billion transactions in November 2024, reflecting its dominance.

RuPay

NPCI’s RuPay card network complements UPI by offering a domestic alternative to Visa and MasterCard. RuPay’s integration with UPI allows users to make credit card payments seamlessly, further enhancing its utility. RuPay accounts for over 60% of card transactions in India, demonstrating the potential of local solutions to reduce dependence on costly global networks.

CBK’s Fast Payment System (FPS): Making Digital Payments Interoperability A Reality

The FPS aims to create a unified, inclusive, and affordable digital payments ecosystem in Kenya. Its key features include:

1. Centralized Switching: FPS will replace bilateral agreements between financial providers, streamlining operations and reducing costs.
2. Real-Time Payments: Consumers will enjoy instant money transfers across banks, mobile money platforms, and fintechs.
3. Interoperability: FPS will integrate various providers into one platform, addressing current gaps in Kenya’s payments ecosystem.
4. Inclusivity: By reducing costs and simplifying payments, FPS aims to bring more unbanked Kenyans into the formal financial system.

PesaLink vs. FPS: Navigating Industry Pushback

The Kenya Bankers Association (KBA) has argued that PesaLink, its interbank payment platform with over 3 million users, could be upgraded to fulfill the objectives of FPS. PesaLink facilitates real-time bank-to-bank transfers but is limited in scope compared to FPS’s broader vision.

The KBA’s concerns include:

• Duplication of Efforts: PesaLink already addresses some of FPS’s goals, making a new system potentially redundant.
• Cost Implications: Building FPS from scratch may require significant investment, which banks fear could increase costs for consumers.
• Fragmentation Risks: Introducing FPS as a competitor could undermine PesaLink’s market position.

While PesaLink is a significant innovation, FPS’s integration of banks, mobile money platforms, and fintechs would appear to offer a more comprehensive solution.

Global Disruptors: Google Pay & WhatsApp Pay in Kenya?

India’s digital payments ecosystem also demonstrates the disruptive potential of global Big Tech players. PhonePe, Google Pay, and WhatsApp Pay dominate UPI transactions, collectively processing over 85% of volumes. WhatsApp Pay’s recent approval for nationwide expansion in India reflects the challenges of regulating a booming payments market while fostering growth.

In Kenya, similar platforms could emerge as viable alternatives to M-PESA:

• Google Pay: With its scalable infrastructure, Google Pay could challenge M-PESA by offering lower costs and cross-border capabilities. Google’s digital ecosystem of offerings is well entrenched in Kenya meaning it can leverage the same to onboard users to Google Pay.
• WhatsApp Pay: By integrating payments into a widely used messaging app, WhatsApp Pay could democratize access to digital transactions. WhatsApp is the most popular instant messaging and social media app in Kenya meaning there is a large installed userbase that can be converted quite easily to WhatsApp Pay.

The entry of these players would increase competition, drive innovation, and potentially reduce transaction costs for consumers.

Opportunities for FPS: Building on Kenya’s Strengths

1. Stimulate Competition: FPS could level the playing field for smaller players like Airtel Money while encouraging new entrants like Google Pay and WhatsApp Pay.
2. Lower Costs: By centralizing operations, FPS could reduce transaction fees, making digital payments more accessible to SMEs and low-income users.
3. Expand Financial Inclusion: An interoperable system would bring more unbanked Kenyans into the formal financial system, building on M-PESA’s legacy.
4. Encourage Partnerships: Collaboration between CBK, KBA, and global Big Tech players could create a robust ecosystem that drives innovation and scalability.

Conclusion: Charting Kenya’s Digital Payments Future

India’s UPI and RuPay have transformed the country’s financial landscape by prioritizing affordability, interoperability, and inclusivity. Kenya’s FPS has the potential to replicate this success, creating a more competitive and integrated payments ecosystem.

While M-PESA’s dominance reflects its important role in Kenya’s digital economy, the FPS represents a chance to enhance competition, reduce costs, and expand financial inclusion. By embracing lessons from India and addressing local challenges, Kenya can position itself as a leader in digital payments innovation.

The question isn’t whether FPS can succeed — it’s how Kenya can align stakeholders, integrate technologies, and implement this transformative vision.