Kenya

As of 2022, the internet penetration rate in Kenya stands at 42%, and as of 2017, 12% of women and 7% of men were unbanked. 79% of customers prefer mobile banking to traditional banking, as of 2020.

In 2019, Kenya passed into law the Data Protection Act, which sets out the requirements for the protection of personal data processed by both public and private entities. The Act also saw the establishment of the Office of the Data Commissioner, which is the national independent regulatory authority responsible for upholding the fundamental rights of individuals to have their personal data protected. The Act gives the data subject the right to access their personal data in the custody of data controllers- banks and other financial institutions- or data processors. 

The Huduma Bill 2021, outlining the digital identity legislation, will enrol births, deaths, offences and penalties, as well as other data, into a management system, is supposed to be compliant with the Data Protection Act but may struggle to balance the line of collecting the data but protecting citizens.

The Central Bank of Kenya (CBK), which is the financial sector regulator, has also published its draft 2021-2025 vision and strategy document, which sets the agenda for the future of the country’s digital payments ecosystem, including the adoption of Open Banking technologies. In particular, the main strategic objectives include open infrastructure; consumer protection; financial system regulation and nurturing future development.

The Vision and Strategy Document highlighted challenges to a switch to digital payments, including a lack of assurances for consumers that payments will reach recipients, limited financial literacy, lack of effective complaints recourse, and even with the Data Protection Act, it is felt there will be unauthorised use of consumers’ data which will undermine trust. The Central Bank thus outlined its strategy of developing a robust framework for digital payments consumer protection, encouraging the integration of digital identity, and adopting global standards, such as ISO20022 messaging.

The Vision and Strategy Document also stated that “CBK will facilitate the development of industry-wide standards for open but secure APIs in a way that guarantees access, safety and integrity of data sharing systems. These standards will include API specifications for identification, verification and authentication; customer account information/data access; transaction initiation; and formats and coding languages for APIs. Due to the risk associated with opening up data from financial institutions to third parties, CBK will define clear risk management frameworks and standards, including providing clarity on liability and consumer protection.”

The 2019 Kenya Digital Economy document was published by the Government and proposed the framework for a digital economy. The ‘five pillars’ outlined there included digital finance services within the digital business, and developing infrastructure to suppose this. The framework also stated that “there is now a concerted effort to move from mobile payments towards a focus on value creation, which encompasses access to credit, access to markets and access to business skills. Secondly, the country is focusing on the need to increase interoperability among e-payment platforms”.

The National Payments Strategy 2022-2025 highlighted that regulatory guidance was needed for the increased use of digital identities to detect and contain fraud, and data governance for cross-border payments.

The National Payment Strategy also declared that “CBK will facilitate the development of appropriate API standards and mandate robust but secure data sharing.” And “These standards will include API specifications for identification, verification and authentication; customer account information/ data access; transaction initiation; and formats and coding languages for APIs. Due to the risk associated with opening up data from financial institutions to third parties, CBK will define clear risk management frameworks, especially on liability and customer protection.” This is listed as being in the medium term of 2023-2024 and being carried out by the CBK with industry participation.

The Central Bank of Kenya is exploring the use of a Central Bank Digital Currency (CBDC) with the hope it might help financial inclusion, innovation, interoperability and competition, amongst other aims.

The Vision and Strategy Document also highlight a lack of interoperability as a hindrance to usage and development, explaining that businesses need multiple devices for multiple channels. They wish to work to remove these hindrances, and therefore reduce costs to businesses and users.

79% of adults in Kenya had bank accounts in 2021, leaving 21% unbanked.

Kenya’s mobile banking service, M-Pesa, launched in 2007, disrupted the financial sector and significantly increased financial inclusion as well as opened up the possibilities of new business models and opportunities like PayGo, and digital credit. Once a SIM card is inserted into a phone, money can be transferred by text message, and unbanked people can use a M-Pesa attendant at a kiosk, handing over cash, to be transferred digitally. The phone number is used as an account number.

As of April 2022, there were 68.72 million registered mobile money accounts in Kenya.

The currency in circulation as a share of GDP has fallen from 4.6% in 2010 to 2.7% in 2019, and cheque values as a share of GDP have fallen from 57% to 27% in the same time period. Although the absolute value has increased in that time, the proportion showing such a drop reflects the increased usage of electronic payments.

Tala, a Silicon Valley-backed Fintech in Kenya, is using advanced machine learning to grant loans to people who have never had a formal credit history. The Branch, active in Kenya but also Nigeria and Tanzania, has a similar value proposition.

The COVID pandemic drove a growth in mobile money transactions, with an increase between February 2020 and December 2021 of bill payments of 143%, and E-wallet to bank account transfers of 573%.

By adopting digital technologies and agent networks to lower the cost of delivering and accessing accounts, payments and loans, the financial sector has significantly broadened its reach and size since the amendment of the Banking Act in 2009.

The digital transformation enabled credit-only providers offering digital loans to consumers over their mobile phones to enter the market.

Kenya ranked 70th out of 134 countries in Wiley’s Digital Skills Global Index 2021. 

NMB bank launched the country’s first Fintech sandbox to provide a safe environment for local startups to develop their ideas.