By Meshack Masibo
Kenya’s fintech scene is evolving fast, and so is the regulatory environment. Like all other fintech domains, crypto companies are moving from the stage of wild innovation, bypassing regulatory shock/backlash and now heading towards regulatory certainty. It is the same journey that payment companies like Mpesa went through in the early 2010s as well as Digital Credit Providers in the early 2020s.
The legal framework which is anchored in the Virtual Asset Service Providers Act of 2025 will be shaped by the adjacent regulations that are due to be released soon. One of the categories of virtual asset companies likely to be caught in regulatory headwinds are the companies operating smack in the middle of fiat money and crypto.
If you’re building in this space, understanding the difference between a Virtual Asset Payment Processor (VAPP) and a Payment Service Provider (PSP) is critical. Get it wrong, and you could fall into the costly dual-licensing trap or get into issues with the regulator.
What Is the Difference Between a VAPP and a PSP?
At a high level:
- PSP (Payment Service Provider): Handles traditional (fiat) payments—think bank transfers, cards, and mobile money like M-Pesa.
- VAPP (Virtual Asset Payment Processor): Bridges crypto and real-world payments—acting as the “on-ramp” and “off-ramp” between digital assets and fiat.
👉 In simple terms: PSPs move money. VAPPs translate between money and crypto.
Financial Requirements for VAPPs in Kenya (2026)
Compared to full crypto exchanges, VAPPs have a lower capital threshold—making them more accessible for startups. This structure reflects the “pass-through” nature of VAPPs—they facilitate transactions rather than hold large trading positions.
The “Fiat Trigger”: When Do You Need Both Licenses?
This is where most founders get tripped up.
1. Crypto-to-Crypto (No PSP Needed)
If your platform:
- Accepts crypto (e.g., Bitcoin)
- Settles in crypto (e.g., stablecoins)
Then you’re operating purely under the VASP framework.
✅ No PSP license required.
2. Crypto-to-Fiat Settlements (The Hybrid Zone)
The moment your platform:
- Converts crypto → Kenyan Shillings (KES)
- Pays out to a bank account or M-Pesa till
You’ve triggered fiat involvement.
⚠️ This is the “Fiat Trigger.”
Now you may need:
- A VAPP license and
- A PSP (or Payment Aggregator) license from the Central Bank of Kenya.
👉 This dual requirement is what’s known as the Hybrid Zone.
I discuss this and more in my book titled ‘The Digital Frontier: Navigating the Kenyan Fintech Regulatory Landscape‘. You can buy my book here . Or you can get a free copy once you book a consultation on your fintech product by emailing info@masibolaw.co.ke
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