Mobile money services in Kenya, such as M-Pesa, Airtel Money, Equitel and T-Kash now face an onslaught by proposed Central Bank Digital Currency (CBDC). The Central Bank of Kenya is seeking to lower payment costs, a thing that could easily dethrone the existing mobile money services.
M-Pesa, owned by Safaricom, is the dominant mobile money service provider in Kenya, hence the most threatened by the digital currency. In the six months to September 2021, the value of M-Pesa transactions grew by 51.5 percent to Ksh13.7 trillion or about 13 percent of Kenya’s Gross Domestic Product (GDP) in 2020.
A CBDC issued by the CBK would be a sovereign currency in an electronic form and it would appear as a liability on CBK’s balance sheet and an asset to users holding it.
“In view of the fact that a CBDC is likely to impact a country’s financial stability and monetary policy, CBK would need to carefully examine a number of important issues such as the current legal, regulatory and supervisory framework, existing infrastructure, governance and risk management, central bank resources, and the core central bank legislation,” CBK said during the launch of the National Payments Strategy 2022-
According to CBK, the introduction of a CBDC would focus on facilitating affordable payments, accelerating initiatives such as seamless interoperability domestically and cross-border, reducing illegal activity, addressing wider systemic risks due to the current market structure and overall enhancing CBK’s oversight over emerging risks and developments in the payments system.
High transaction costs have long been identified by critics of M-Pesa as one of its biggest undoings. Transferring cash between mobile money services operated by different telcos is also expensive, as are cross-border payments.
It can cost up to more than four times the fees to transfer cash from M-Pesa to one of the smaller mobile money services’ customers – described as “unregistered users”, compared to transfers among Safaricom customers.
“While the recent improvements in various payments channels have been commendable, the same has not been reflected in terms of pricing of various payments services,” adds CBK.
“Further, where institutions utilise payments rails, services are availed to end-customers with multiple charges. The inability to put in place effective and easy-to-access mechanisms to address price-related complaints, particularly on digital channels, has undermined trust. CBK is determined, working with the industry, to change this reality and ensure that the benefits of digitalisation translate to affordable, transparent and customer-centric payment services.”
The regulator also indicates that the CBDC systems should provide sufficient customer protection such as on responsible data governance due to the immediate data that would accrue from issuance of say a retail CBDC.
“Launching a CBDC is a multidimensional undertaking that extends beyond CBK’s normal financial innovation policy frameworks. Issuing a CBDC will require national and international collaboration, including alignment to existing and emerging global best practices and international standards on payments,” adds CBK.
A CBDC could impact monetary policy transmission, financial stability, financial sector intermediation, and the exchange rate channel.
Whilst CBDC offers various opportunities to improve the digital payments ecosystem, it also comes with risks including how it would impact the central bank’s core functions of monetary policy, financial stability and payment systems oversight.
Mobile money transactions – particularly merchant payments – may have become a substitute for card payments. Pesalink, a bank P2P service, which was launched in 2017, enables 24/7 real-time payments of up to Ksh999,999 across banks.