MasiboLaw

By Meshack Masibo

The Payments Industry in Kenya has been steadily growing for the past decade or so as different companies battle to offer Kenyans unique payment channels and methods. However, one of the biggest hurdles to setting up a payments business is acquiring a license to operate.  At the same time, as we closed the year in 2023, the Central Bank of Kenya (CBK) issued a cautionary notice warning companies from offering payment services without first acquiring a license.

What most people might not be aware of is that there are a wide variety of licenses you can get as a Payment Service Provider (PSP) and while they have some similar requirements, each also has a unique set of requirements.  

Here are the different types of licenses you can acquire; 

1. A License for the Provision of Electronic Retail Transfers

This license allows you to execute payment instructions in a retail context. A company with this type of license executes a payment instruction issued by a payer to debit a payment account and credit the payment account of the payee. A unique thing about this license is it has a transfer limit which was previously 100,000 Kenyan shillings but has now increased to 250,000 shillings for certain players.  An example of an electronic retail transfer product is Safaricom’s Mpesa. 

2. A License to act as a Small e-Money Issuer

This license allows you to offer accounts to people to transact sums not exceeding 10,000 shillings at a time and requires a lesser core capital requirement of 1,000,000 shillings compared to 5,000,000 for other types of PSPs. This also applies to people who are planning to offer the payment option to only a specific subset of people, for example, payments for minor expenses within a company like Coca-Cola can be done by its own authorized Small e-Money Issuer. 

3. A License to act as an E-Money Issuer

This license allows the holder to issue e-money which is generally stored in a banking computer system and backed by fiat currency. “E-money” means monetary value that is either electronically or magnetically stored and issued against receipt of currency of Kenya and accepted as a means of payment by persons other than the issuer. For example, the Kenya Airports Parking Services (KAPS) Limited serves this by receiving, storing and facilitating payments for parking using prepaid cards and mobile money. 

4. A License to be Designated as a  Payment Instrument

This license allows you to run and operate an instrument or arrangement that enables payments to be effected between a payer and a beneficiary, or facilitates the circulation of money and includes any instruments and procedures that relate to the system. A good example of this is PesaPal which collects payments on behalf of popular booking and travel agencies.

5. A License to be Designated as a Payment System

This license allows you to own, possess, operate, manage or control infrastructure for the provision of payment services and is usually the strongest of the licenses because it offers not just facilitating transfers but owning a payment system.  A good example is Pesalink which has a license that allows it to own, possess, operate, manage or control infrastructure for the provision of payment services. It does this by facilitating transfers between banks and other networks.

In conclusion, there are different types of payment service providers and it is crucial to understand which role you intend to play before seeking a license. This will save you both time and resources and help you achieve your goal faster.  

The writer is a lawyer who specializes in offering legal services to people in technology, you can contact him through info@masibolaw.co.ke