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Kenya’s payments industry is growing rapidly, attracting numerous fintech firms eager to tap into the expanding digital transactions market. However, operating in this space requires compliance with stringent regulations set by the Central Bank of Kenya (CBK). The CBK has increased regulatory oversight, cracking down on unlicensed fintech companies. Notably, in 2022, the CBK issued warnings against firms like FlutterWave and ChipperCash, highlighting the importance of proper licensing.

Understanding PSP Licensing in Kenya

The National Payment Systems Act (2014) defines a Payment Service Provider (PSP) as any entity that facilitates electronic payments or manages a public switched network for payment services. A landmark 2022 High Court Decision further extended this definition to include companies utilizing the SWIFT banking infrastructure, meaning even back-end payment processors may require licensing.

Due to CBK’s strict regulations, obtaining a PSP license can be a complex and time-consuming process, particularly for foreign companies. However, aligning with CBK’s Kenya National Payments System Vision and Strategy (2021-2025)—which prioritizes affordability, security, and interoperability—can significantly improve approval chances.

Types of PSP Licenses in Kenya

1. License for Electronic Retail Transfers

This license allows businesses to process retail transactions and e-commerce payments. Companies like Pesapal use this license to facilitate payments for hotels, airlines, and online stores. The transaction limit for certain businesses has increased to KES 250,000.

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

Ideal for businesses offering digital wallets with limited transaction values (up to KES 10,000 per transaction). It requires a lower core capital of KES 1,000,000. Large corporations like Coca-Cola could leverage this license to facilitate internal staff payments.

3. License to Act as an E-Money Issuer

This license permits companies to issue e-money backed by fiat currency and accepted by third parties. A notable example is Kenya Airports Parking Services (KAPS), which enables cashless parking payments.

4. License for Designation as a Payment Instrument

This license is required for businesses that operate payment instruments such as mobile wallets, debit/credit cards, or digital payment methods. A well-known example is M-Pesa, which enables millions of Kenyans to send, receive, and store money electronically.

5. License for Designation as a Payment System

The most comprehensive PSP license allows businesses to own and manage payment infrastructure. A prime example is PesaLink, which facilitates real-time interbank transfers across financial institutions in Kenya.

How to Obtain a PSP License in Kenya

1. Choose and Register a Business Name

Submit three proposed business names to CBK for approval. Once approved, reserve the name with the Registrar of Companies. You can skip this step if your company is alread registered and conducting business.

2. Submit an Application to CBK

Schedule a preliminary meeting with CBK to discuss licensing requirements and compliance expectations. You can also simultaneously submit the application requirements you have at this point.

3. Provide Company Details

Submit the following details for assessment:

• Trustees for the custodial trust account
• Significant shareholders
• Directors and senior managers

CBK evaluates the integrity, qualifications, and financial history of these individuals to ensure compliance with regulatory standards.

4. Submit Required Documents & Fees

• Application fee: KES 5,000 (USD 50)
• Authorization fee: KES 100,000 (USD 1,000)
• Proof of minimum core capital: KES 5,000,000 (USD 50,000)

Conclusion

Choosing the right PSP license is crucial for success in Kenya’s competitive payments industry. Ensuring compliance with CBK regulations and aligning with the country’s financial vision can streamline the licensing process. Companies should also seek expert legal guidance to navigate complex regulatory requirements efficiently.

Need legal assistance with PSP licensing and compliance in Kenya?

Contact us at info@masibolaw.co.ke for expert guidance on fintech regulations and licensing processes.