When fintech startups aim to expand to Kenya, one of the biggest challenges they face is obtaining an operating licence.
Securing a payment service provider (PSP) licence in Kenya can be a lengthy process, sometimes taking up to two years due to approval delays. This situation often leads startups to seek alternative solutions such as forming partnerships with telcos, banks, and mobile money providers.
Rachael Balsham, the Managing Director for East and Southern Africa at fintech Onafriq, mentioned at the recent Africa Fintech Summit in Nairobi that in Kenya, they facilitate connections between licensed parties rather than offering services that require a licence they don’t have.
Onafriq, which is licensed in 12 African countries but not in Kenya, allows businesses to conduct money transfers across 40 African nations. However, due to licensing challenges, they are unable to operate in Kenya, highlighting the significant barrier posed by the slow licensing processes in the country.
Despite discussions by the Central Bank of Kenya (CBK) about implementing legal reforms to streamline fintech licensing, the high barriers to market entry and the dynamic regulatory environment have hindered progress. This has contributed to the continued dominance of traditional players like commercial banks and telcos.
In an effort to address the issue, there are plans to update and amend the Payments Act in Kenya, with the aim of providing clearer guidelines for the payments service providers sector. However, challenges such as the lack of capacity for thorough due diligence before issuing licences have been acknowledged.
One potential solution proposed by Balsham is the concept of “licence passporting.” This mechanism would allow established fintech companies to operate in multiple countries within a region without the need for separate licences in each country, similar to how a driver’s licence from one country can be used in others within the same region.
Although licence passporting has not been adopted by any African country yet, its implementation could facilitate cross-border services, potentially leading to more competitive pricing, improved products, and increased options for consumers.