MasiboLaw

By Meshack Masibo and Joy Kawira

The payments and remittances industry is bustling the world over with estimates showing that Kenyans in the diaspora sent home a whooping 210 billion shillings in the past 4 months alone. Additionally, the rise of e-commerce which is projected to grow to 4.2 billion US dollars in revenue alongside ride-hailing platforms and cryptocurrency exchanges has seen a rapid increase in demand for payment service providers (PSP) in Kenya.

This has seen the Central Bank of Kenya issue more than 80% of all valid PSP licenses within the last 3 years alone. Whereas Kenya takes a different licensing approach compared to countries like the UK and Canada which offer a quicker and simpler Money Service Business (MSB) Licence, it has almost similar requirements for licensed entities as the two.

These duties and responsibilities are provided for in the National Payment  System Regulations of 2014 and are as follows;

1. Due Diligence

When selecting agents or merchants, PSPs should exercise due diligence and conduct thorough suitability assessments. This ensures that only reliable and competent agents handle transactions, minimizing risks and enhancing service quality.

2. Maintain Proper Records

A Payment Service Provider should have a detailed record of the Agents, Merchants and persons responsible for the management of the agent or merchant including their names,  addresses, and contact numbers as well as a register of agents and cash merchants whose services have been suspended or terminated, along with reasons for these actions. The record should also contain the physical addresses and phone numbers of every outlet where cash services are provided. The records and information should be availed to the CBK upon request.

3. Train Staff and Employees

Adequately train and support their agents including offering agents with manuals detailing policies, rules, and operational guidelines and effective oversight over the activities of agents and cash merchants.

4. Maintain Interoperability

Kenya’s payment systems do not operate in silos. PSPs must use systems capable of interoperating with other payment systems for a smooth user experience across platforms.

6. Compliance

PSPs must comply with technical standards issued by the CBK  and any other international standards as set out in the Third Schedule of the CBK’s Risk Management guidelines.

7. Establish a Trust and have Independent Trustees

All PSPs must establish a Trust, ensure all monies received are held in the Trust Fund and employ appropriate risk mitigation strategies to ensure that the funds held in the Trust Fund are sufficiently diversified and placed in commercial banks licensed under the Banking Act.

Additionally, PSPs must establish effective, transparent and adequate governance arrangements to ensure the continued integrity of its service including a broad-based Board of Trustees, clearly defined and documented organizational arrangements and segregation of duties and internal control arrangements to reduce the chances of mismanagement and fraud.

In conclusion, getting a PSP Licence, although a remarkable achievement, is not the final step when it comes to running a Payments Company. To ensure your license is not revoked and it is renewed every year,  PSPs ought to exercise due diligence, maintain proper records, comply with the law and establish a Trust to safeguard customer funds.

The writers are lawyers who specialize in offering legal services to people in technology, in case you need further assistance, don’t hesitate to reach them at info@masibolaw.co.ke