Kenya’s Central Bank Gears Up For Open Banking in New 5-Year Strategy

The Central Bank of Kenya has published its 2021-2025 vision and strategy document which sets the agenda on the future of the country’s digital payments ecosystem including the adoption of technologies that enable the delivery of new open banking services.

Open banking is referred to as the practice of electronically sharing customer financial information such as account information and transactional history to third-party applications in a secure way. This allows third parties such as fintechs to develop new and innovative products and services to customers and businesses.

The Central Bank says it is seeking to address the “diverse needs of the Kenyan people and its economy, and support our nation’s ambition of becoming a digital, cash-lite and 24/7 economy, including enhancing our global leadership in digital and mobile money innovation.”

“In particular, the main strategic objectives include open infrastructure; consumer protection; financial system regulation and nurturing future development.” reads the report.

In the draft document, CBK Mentions that it reviewed a number of global standards while benchmarking with other countries such as South Africa, UK among others which have made significant progress on their payment infrastructures.

In developing the 5-year strategy, the central bank says it sought participation from various stakeholders from key industry players such as payment service providers, banks and money remittance providers, Kenya Bankers Association, SACCOs, fintechs, payment processors and aggregators, retailers and merchants, Government ministries, departments and agencies, the World Bank and FSD Kenya.

The CBK also mentions that the Ministry of Treasury is finalizing a Digital Finance Policy framework which seeks to ensure that financial services are delivered to Kenyans through integration with digital technologies.

Since March 2020, when Kenya confirmed its first covid-19 case, the central bank says the country has witnessed a significant increase in mobile and digital payments. For instance, between February and October 2020, volumes of P2P payments increased by 87%, with an additional 2.8 million customers using mobile payments. Volumes and value of transactions below Ksh. 1000 increased by 114% and 200%.’Central Bank says in June 2020, it upgraded the Real Time Gross Settlement System (RTGS), commonly referred to as the Kenya Electronic Payment and Settlement System (KEPSS).

The bank disclosed that the new system can process up to one million transactions per day. The system currently handles more than 80 per cent of the total value of transactions settled within the Kenyan payment systems. It currently processes a daily average of 19,000 transactions valued at more than Ksh. 103 billion.

CBK says it will work to define standards for effective and appropriate development of Applications Programming Interfaces (APIs) while ensuring robust and secure data sharing in the banking industry.

“Data sharing and portability will be done while taking into account the Data Protection Act, 2019, in order to ensure that all aspects of data governance (sharing, storage, privacy, etc.) take into account the unique needs of financial and payments data and data users. The use of APIs will need to be evaluated against the risks that it also introduces into the payments ecosystem.” says the bank.

Additionally, CBK notes that it has completed the framework and security review of the APIs and it is working to facilitate the development of an industry-wide standard for open but secure APIs in a way that guarantees access, safety and integrity of data sharing systems. Part of the standards will include API specifications for customer identification, verification and authentication; customer account information/data access; transaction initiation; and formats and coding languages for the APIs.

Due to the risk associated with opening up data from financial institutions to third-parties, CBK says it will define clear risk management frameworks and standards, including providing clarity on liability and consumer protection. CBK further notes that it will support the development of a comprehensive framework for financial data protection and governance.

Kenya’s President Uhuru Kenyatta in 2019 signed into law the Data Protection Bill 2019 which sets out the requirements for the protection of personal data processed by both public and private entities.

The law also saw the establishment of the office of the Data Commissioner. In October, Immaculate Kassait was confirmed as Kenya’s first Data Commissioner, serving for a non-renewable tenure of 6 years following approval by legislators.

Following the footsteps of Kenya’s Capital Markets Authority, the Central Bank has also hinted at a possible establishment of a regulatory sandbox that will explore ways of providing guidance on how players with innovative services can apply for licensing.

The Central Bank says that in cases where potential applicants are able to demonstrate that their services bring value-adding innovation, new capabilities in the payment system while sufficiently mitigating risks to the payment system and its users.

“This work will target new service offering among fintechs, innovation among existing PSPs and, subject to detailed review, consideration on the need to widen the scope of players who can be authorised to participate in the NPS ecosystem to increase competition and choice.” CBK notes.