Fintech in Kenya

February 12, 2017

Financial Technology (FinTech) in Kenya is taking shape largely because of the country’s financial industry considered one of the most competitive and robust in Sub Saharan Africa. It’s clear that, with relative strength in financial services, Kenya has the potential to become a leading FinTech player in Africa. Thats why the appointment by Kenya Bankers Association of a management team to spearhead business and technical operations of banking sector’s players umbrella organisation called Integrated Payments Services did not come as a surprise to me as this is an area where am involved directly with FinTech software solutions. Am hoping that other Africa countries will follow similar path taken by South Africa, Nigeria and now Kenya. In Kenya’s case, appointment of Jennifer Theuri means getting the policy settings right and backing local FinTech firms to maintain and develop competitive advantage and global leadership.Kenya Bankers Association FinTech program both promotes Kenya as a hot house for financial services and showcases innovative financial products and services to the world like Mobile Money platform M-Shwari has done.Jennifer Theuri’s and her team at payments technology subsidiary of Kenya Bankers Association, Integrated Payments Services will need to craft policies and regulations to help promote Kenya’s FinTech capability by supporting the evolution of FinTech start‑ups and innovators to develop, test and launch their innovative financial products and services. Kenya’s dynamic ecosystem will help burgeoning start‑up community to foster innovation and turn these ideas into commercial opportunities and successful commercialisation. Kenya can then serve as a launching pad into African markets.There’s no doubt technological advancement has made its way into almost every aspect of human life, including financial services. Over the last couple of years, we have witnessed an astonishingly swift emergence of FinTech start-up firms that have grown thanks to the ubiquity of technology in financial services and Kenya is not an exception.

Consequently, Kenyans have become more accustomed with the likes of PayPal for day to day financial services followed by the birth of domestic providers such as M-Pesa, M-Shwari etc.There is a lot of potential to boost the size of Kenyan FinTech. Kenya is considered to be a very promising market given the size of its population and its demographic make-up, with large generations Y and Z, who are considered to be more technology savvy. Aware of this great potential, the Kenyan banks have been paying a lot of attention to this new wave in the financial sector. From the banking perspective, this development comes with several consequences. On the one hand, the emergence of FinTech has provided borrowers, especially the unbanked population as M-Shwari in Kenya is doing, with an alternative way to access financial services, which could spur consumption and ultimately economic growth. On the other hand, Kenyans must be wary of the potential risks.These risks include counterparty credit, market and operational risks. The first involves the default of one counterparty in a peer to peer lending transaction facilitated by Kenya’s FinTech companies. Jennifer Theuri as an experienced banker together with her team need to tackle the market risk that relates to the probability of losing a portion of investment made by FinTech due to market movement.Also, operational risks that covers a wider array of risk events such as disruption to the information technology system, malware infection, and possible fraud by the firms’ employees and risk in settlement activities and data protection.Jennifer Theuri, whose title is Chief Executive Officer of Integrated Payments Services Limited need to realise that when FinTech market capitalisation reaches a certain level, which might impact the stability of the financial system as a whole, there is also a possible systemic risk.Therefore, going forward, there are two inter-related aspects of FinTech in Kenya that require thorough monitoring and that include the financial aspect and the technological aspect. The first aspect concerns regulatory measures in the financial sector to avoid the aforementioned risks of FinTech development.

At the moment, there are two main agencies involved in regulating this industry in Kenya. Central Bank of Kenya regulates the payment system and macro prudential policies while Capital Markets Authority carries out almost similar tasks to regulate banking and non-banking financial institutions.The other aspect concerns technology and the ICT domain as the main vein of the growth of the industry. The fact that the majority of FinTech revenue still depends on transactions made through mobile networks means there is some unfinished business in regulating the Kenyan mobile industry.The regulation should aim to achieve more sustainable telecommunications industries capable of supporting the emergence of FinTech. Ideally, they are supposed to reach out to subscribers not only those concentrated in the bigger cities like Mombasa, Nairobi, Kisumu but more importantly the unbanked population in far flung areas like Moyale, Turkana, Taita Taveta, Lamu etc. Moreover, the service should be available with affordable access and usage costs.Also, Integrated Payments Services Limited need to ensure that innovation in Kenya’s FinTech industry acquires more efforts from government agencies and established financial institutions to co-create active research and development by linking FinTech and start-ups.Therefore, lucrative growth can be observed not only in the Kenya’s financial sector but also in the supporting ICT industries in the FinTech ecosystem, including but not limited to security, artificial intelligence, blockchains, cloud, biometrics and data center.In conclusion, given the numerous authorities involved in regulating FinTech firms in Kenya, a stronger bond of coordination between agencies is an important key to promoting the stable growth of FinTech while minimising the risk level. No doubt a well-regulated FinTech industry has greater possibilities to create spillover impacts, not only for the financial sector but also for the rest of Kenyan economy.Jennifer Theuri will have to build stronger credibility in the market denoted by the increasing demand from consumer and other industries and especially by the backward and forward linkages made by ICT industries as the main supporters.

Contador Harrison