Why Banks Oppose Creation Of New Real-time Fast Payment System

Kenya’s financial sector is witnessing an intense battle over the future of digital payments, with the Central Bank of Kenya (CBK) pushing for a new real-time Fast Payment System (FPS) while banks and private sector players push back with alternative solutions.

CBK’s goal is to introduce an interoperable system that allows instant money transfers between banks, mobile wallets, and other financial service providers at a lower cost. The system, inspired by global models like Nigeria’s NIBSS and India’s UPI, is expected to dramatically change Kenya’s financial sector.

However, the plan has sparked competition among financial players. A consortium involving Nigeria’s NIBSS, Webmasters Kenya Ltd, and digital payments firm Ceva is lobbying President William Ruto for government support in developing the FPS. In a letter to Ruto, Ceva’s Managing Director Yatin Mehta said that their proposed system would benefit Kenya’s financial ecosystem by ensuring efficient and low-cost digital transactions.

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On the other hand, Kenyan commercial banks, through the Kenya Bankers Association (KBA), oppose CBK’s plan, arguing that instead of building a new system from scratch, the government should upgrade PesaLink, an existing platform operated by banks. According to KBA and Safaricom, building a new system would cost up to Sh25 billion. They argue that this would save time and money while ensuring continuity.

The banks’ resistance aligns with a previous push for interoperability within Kenya’s financial system. A CBK press release in October 2024 highlighted ongoing efforts to create a sector-wide solution, with a technical working group already in place to enhance interconnectivity.

According to TechCabal, CBK’s move follows a global trend where central banks seek to reduce dependency on private payment providers and improve digital financial inclusion. Nigeria’s NIBSS, for instance, successfully powers real-time payments in the country, and CBK is reportedly considering a similar approach for Kenya.

Meanwhile, Kenyan banks fear losing their grip on transaction fees if a central switch is introduced. A report by Techpoint Africa notes that CBK’s Fast Payment System could disrupt Kenya’s mobile money dominance, potentially reducing M-Pesa’s influence by enabling direct bank-to-wallet transfers at lower costs.