MasiboLaw

By Meshack Masibo

Kenya’s payments industry has experienced significant growth over the past decade, with numerous companies competing to offer innovative payment solutions. However, one of the main challenges in establishing a payment business is obtaining the necessary licensing. Many people may not be aware that there are multiple types of Payment Service Provider (PSP) licenses, each with distinct requirements and regulations.

Below is a breakdown of the different PSP licenses available in Kenya:

1. License for the Provision of Electronic Retail Transfers

This license allows a company to process retail payment transactions and facilitate collections for e-commerce businesses. A PSP holding this license executes payment instructions by debiting a payer’s account and crediting the payee’s account. Holders of this licence primarily help merchants to collect and process payments.

For example, Pesapal operates under this model, collecting payments on behalf of travel and booking agencies. Previously, transactions under this license were capped at KES 100,000 per transfer. Still, the limit has since been increased to KES 250,000 for certain entities.

2. License to Act as a Small E-Money Issuer

A Small E-Money Issuer (SEMI) license allows an entity to offer digital wallets or accounts with a limited transaction value—typically up to KES 10,000 per transaction. This license has a lower core capital requirement of KES 1,000,000, compared to the KES 5,000,000 required for other PSPs.

This license is ideal for businesses offering payment solutions to a restricted group of users. For instance, a company like Coca-Cola could use this license to facilitate minor employee expenses within its organization.

3. License to Act as an E-Money Issuer

This license allows a company to issue e-money, which is monetary value stored electronically or magnetically, backed by fiat currency, and accepted as a payment method by third parties.

A good example is Kenya Airports Parking Services (KAPS) Limited, which enables prepaid parking payments using stored-value cards and mobile money.

4. License for Designation as a Payment Instrument

This license allows a company to operate a payment instrument that facilitates transactions between payers and beneficiaries. A payment instrument could be a mobile wallet, card, or any system enabling the transfer of funds.

An example of a designated payment instrument is Safaricom’s M-Pesa, which enables millions of Kenyans to send, receive, and store money electronically.

5. License for Designation as a Payment System

This is the most comprehensive PSP license, allowing an entity to own, manage, and operate payment infrastructure. Unlike other licenses that primarily facilitate payments, this category enables a company to build and control an entire payment system.

For instance, PesaLink operates under this license, providing interbank transfer services that connect multiple financial institutions and payment networks.

Conclusion

Understanding the different types of PSP licenses is essential before launching a payment services business in Kenya. Each license serves a unique purpose, and selecting the right one can save time, reduce regulatory hurdles, and ensure a smoother business setup. Proper planning and compliance with CBK regulations are key to success in Kenya’s growing payments industry.

The writer is a lawyer specializing in offering legal services for technology businesses. You can reach him at info@masibolaw.co.ke.