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CBK’s Nod to Crypto in New Payments Strategy

It delved into cryptocurrencies, DLT and Blockchain integration to retail and cross-border payments

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The Central Bank of Kenya (CBK) on Wednesday, February 23 published the National Payments Strategy 2022-2025, offering valuable insights into the payments landscape in Kenya and its future.

The strategy paints a picture of the evolution of payment systems in Kenya from the introduction of the first Automated Teller Machine (ATM) in Kenya in 1989 by Standard Chartered Bank at its Moi Avenue branch, to 2022 when mobile money and fintech rules the roost.

It notably acknowledges the rise of cryptocurrency as among key changes in the global payments landscape, alongside the increased role of big-tech in financial services.

It delved into cryptocurrencies, DLT and Blockchain integration to retail and cross-border payments as shifts on the supply side and technology driving global payments. CBK however also highlighted the need for “caution and regulatory vigilance” vigilance on crypto.

“Even though DLT and blockchain has led to immense changes in the evolution of digital assets over the years, major risks and regulatory concerns remain. Regulators are assessing how to mitigate the inherent risks, and fine-tuning their toolkits in order to
swiftly address vulnerabilities and risks of various cryptoassets when integrated in payment systems,” the strategy reads in part.

Other changes observed include shifting customer preferences, including demand for fully digital end-to-end solutions that are seamlessly interoperable, instant payments and embedded finance. It also looked at changing regulatory perspectives such as growing concerns on big-tech, systemic risks, market power and data governance.

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Looking closer at Kenya, CBK noted the high adoption of mobile money in which Kenya is a global pioneer. The increased digital adoption has driven cheque values as a share of Kenya’s GDP down from 57% in 2010 to just 22% in 2021.

The strategy explores what a Central Bank Digital Currency (CBDC) in Kenya would look like. Prioritizing functionality, it asserts a need to address challenges encountered by Kenyans in their every day payments – particularly the cost of using mobile money services, inter-operability and cross-border payments.

Safaricom’s market leading M-Pesa mobile money service has long faced criticism for what many consider high transaction fees. It costs between Sh10 and Sh300 for withdrawals of between Ksh50 and Ksh150,000 on Safaricom’s M-Pesa.

The latest financial data from Safaricom shows that the value of transactions on M-Pesa rose 51.5 per cent to Ksh13.7 trillion in the six months to September 2021 – about 13 per cent of Kenya’s gross domestic product (GDP) in 2020. The figure will certainly be higher at the end of Safaricom’s reporting period in March 2022.

“The trend in Kenya’s domestic payments confirm the existence of a digital currency (e-money) that is robust, inclusive and highly active.”

“For this reason, the consideration to introduce a CBDC in the payments system in Kenya would then potentially focus on addressing current and future challenges in the payments ecosystem such as facilitating affordable payments, accelerating initiatives such as seamless interoperability domestically and crossborder, 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,” the CBK noted.

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MARTIN SIELEhttps://loud.co.ke/
Martin K.N Siele is the Content Lead at Business Today. He is also a Quartz contributor and a 2021 Baraza Media Lab-Fringe Graph Data Storytelling Fellow. Passionate about digital media, sports and entertainment, Siele also founded Loud.co.ke
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