What licenses are required to operate a mobile payments service in Kenya and how do I stay compliant with CBK regulations?

Hello, 

The payments and remittances industry is bustling the world over with estimates showing that Kenyans in the diaspora sent home a whooping 210 billion shillings in the past 4 months alone. Additionally, the rise of e-commerce which is projected to grow to 4.2 billion US dollars in revenue alongside ride-hailing platforms and cryptocurrency exchanges has seen a rapid increase in demand for payment service providers (PSP) in Kenya.

This has seen the Central Bank of Kenya issue more than 80% of all valid PSP licenses within the last 3 years alone. Whereas Kenya takes a different licensing approach compared to countries like the UK and Canada which offer a quicker and simpler Money Service Business (MSB) Licence, it has almost similar requirements for licensed entities as the two.

These duties and responsibilities are provided for in the National Payment  System Regulations of 2014 and are as follows;

1. Due Diligence

When selecting agents or merchants, PSPs should exercise due diligence and conduct thorough suitability assessments. This ensures that only reliable and competent agents handle transactions, minimizing risks and enhancing service quality.

2. Maintain Proper Records

A Payment Service Provider should have a detailed record of the Agents, Merchants and persons responsible for the management of the agent or merchant including their names,  addresses, and contact numbers as well as a register of agents and cash merchants whose services have been suspended or terminated, along with reasons for these actions. The record should also contain the physical addresses and phone numbers of every outlet where cash services are provided. The records and information should be availed to the CBK upon request.

3. Train Staff and Employees

Adequately train and support their agents including offering agents with manuals detailing policies, rules, and operational guidelines and effective oversight over the activities of agents and cash merchants.

4. Maintain Interoperability

Kenya’s payment systems do not operate in silos. PSPs must use systems capable of interoperating with other payment systems for a smooth user experience across platforms.

6. Compliance

PSPs must comply with technical standards issued by the CBK  and any other international standards as set out in the Third Schedule of the CBK’s Risk Management guidelines.

7. Establish a Trust and have Independent Trustees

All PSPs must establish a Trust, ensure all monies received are held in the Trust Fund and employ appropriate risk mitigation strategies to ensure that the funds held in the Trust Fund are sufficiently diversified and placed in commercial banks licensed under the Banking Act.

Additionally, PSPs must establish effective, transparent and adequate governance arrangements to ensure the continued integrity of its service including a broad-based Board of Trustees, clearly defined and documented organizational arrangements and segregation of duties and internal control arrangements to reduce the chances of mismanagement and fraud.

In conclusion, getting a PSP Licence, although a remarkable achievement, is not the final step when it comes to running a Payments Company. To ensure your license is not revoked and it is renewed every year,  PSPs ought to exercise due diligence, maintain proper records, comply with the law and establish a Trust to safeguard customer funds.

 

Secondly,

 

Understanding PSP Licensing in Kenya

The National Payment Systems Act (2014) defines a Payment Service Provider (PSP) as any entity that facilitates electronic payments or manages a public switched network for payment services. A landmark 2022 High Court Decision further extended this definition to include companies utilizing the SWIFT banking infrastructure, meaning even back-end payment processors may require licensing.

Due to CBK’s strict regulations, obtaining a PSP license can be a complex and time-consuming process, particularly for foreign companies. However, aligning with CBK’s Kenya National Payments System Vision and Strategy (2021-2025)—which prioritizes affordability, security, and interoperability—can significantly improve approval chances.

Types of PSP Licenses in Kenya

1. License for Electronic Retail Transfers

This license allows businesses to process retail transactions and e-commerce payments. Companies like Pesapal use this license to facilitate payments for hotels, airlines, and online stores. The transaction limit for certain businesses has increased to KES 250,000.

2. License to Act as a Small E-Money Issuer

Ideal for businesses offering digital wallets with limited transaction values (up to KES 10,000 per transaction). It requires a lower core capital of KES 1,000,000. Large corporations like Coca-Cola could leverage this license to facilitate internal staff payments.

3. License to Act as an E-Money Issuer

This license permits companies to issue e-money backed by fiat currency and accepted by third parties. A notable example is Kenya Airports Parking Services (KAPS), which enables cashless parking payments.

4. License for Designation as a Payment Instrument

This license is required for businesses that operate payment instruments such as mobile wallets, debit/credit cards, or digital payment methods. A well-known example is M-Pesa, which enables millions of Kenyans to send, receive, and store money electronically.

5. License for Designation as a Payment System

The most comprehensive PSP license allows businesses to own and manage payment infrastructure. A prime example is PesaLink, which facilitates real-time interbank transfers across financial institutions in Kenya.

How to Obtain a PSP License in Kenya

1. Choose and Register a Business Name

Submit three proposed business names to CBK for approval. Once approved, reserve the name with the Registrar of Companies. You can skip this step if your company is alread registered and conducting business.

2. Submit an Application to CBK

Schedule a preliminary meeting with CBK to discuss licensing requirements and compliance expectations. You can also simultaneously submit the application requirements you have at this point.

3. Provide Company Details

Submit the following details for assessment:

• Trustees for the custodial trust account
• Significant shareholders
• Directors and senior managers

CBK evaluates the integrity, qualifications, and financial history of these individuals to ensure compliance with regulatory standards.

4. Submit Required Documents & Fees

• Application fee: KES 5,000 (USD 50)
• Authorization fee: KES 100,000 (USD 1,000)
• Proof of minimum core capital: KES 5,000,000 (USD 50,000)

Conclusion

Choosing the right PSP license is crucial for success in Kenya’s competitive payments industry. Ensuring compliance with CBK regulations and aligning with the country’s financial vision can streamline the licensing process. Companies should also seek expert legal guidance to navigate complex regulatory requirements efficiently.

Thirdly,

As we closed the year in 2023, the Central Bank of Kenya (CBK) issued a cautionary notice warning fintech companies from offering payment services without first acquiring a licence. This is not the first time that the Central Bank of Kenya has gone after fintechs, in July 2022, the Bank cautioned banks from dealing with FlutterWave and ChipperCash over the fact that they were not licenced.

This has caused anxiety in fintech circles as many companies try to determine whether they qualify as Payment Service Providers (PSPs) or not.  The National Payment Systems Act 2014 defines a PSP as either a person, company or organisation acting as provider in relation to sending, receiving, storing or processing of payments or the provision of other services in relation to payment services through any electronic system.

The Act also states that any person, company or organisation which owns, possesses, operates, manages or controls a public switched network for the provision of payment services or processes or stores data on behalf of such payment service providers or users of such payment services is a PSP and needs to be licensed.

This definition was expanded by the Court in 2022 in the case of Kenya Commerce Exchange Service Bureau Limited (Kenex v Central Bank of Kenya (Constitutional Petition E181 of 2021) [2022] KEHC 13189 (KLR) (Constitutional and Judicial Review) (30 September 2022) (Judgment) where the Court added that any company that has systems that rely on access to the SWIFT banking infrastructure is a Payment Service Provider. The Judge said that a Payment Service Provider does not strictly refer to a company that sends or receives messages or processes payments or other messages on behalf of banks.

The reason that this is worrying is that getting a licence to act as a Payment Service Provider is not a walk in the park, it requires a substantial investment moneywise and can take a long time, sometimes even years especially for foreign companies.

However, this process can be simplified when fintechs align their application with CBK’s long term plan. This long term plan is outlined in the Kenya National Payments System Vision and Strategy, 2021-2025. Fintechs must ensure that their products are customer centric, affordable to the common mwananchi (citizen), secure and interoperable with the current banking infrastructure.

Additionally, foreign companies seeking the licence ought to demonstrate how issuing them the licence will benefit Kenyans in the long run, this can be done by incorporating Kenyans in their governance structures and workforce as well as setting aside a small part of their profits for corporate social responsibility.

Are you considering getting a licence with the Central Bank of Kenya?

Hello, 

The payments and remittances industry is bustling the world over with estimates showing that Kenyans in the diaspora sent home a whooping 210 billion shillings in the past 4 months alone. Additionally, the rise of e-commerce which is projected to grow to 4.2 billion US dollars in revenue alongside ride-hailing platforms and cryptocurrency exchanges has seen a rapid increase in demand for payment service providers (PSP) in Kenya.

This has seen the Central Bank of Kenya issue more than 80% of all valid PSP licenses within the last 3 years alone. Whereas Kenya takes a different licensing approach compared to countries like the UK and Canada which offer a quicker and simpler Money Service Business (MSB) Licence, it has almost similar requirements for licensed entities as the two.

These duties and responsibilities are provided for in the National Payment  System Regulations of 2014 and are as follows;

1. Due Diligence

When selecting agents or merchants, PSPs should exercise due diligence and conduct thorough suitability assessments. This ensures that only reliable and competent agents handle transactions, minimizing risks and enhancing service quality.

2. Maintain Proper Records

A Payment Service Provider should have a detailed record of the Agents, Merchants and persons responsible for the management of the agent or merchant including their names,  addresses, and contact numbers as well as a register of agents and cash merchants whose services have been suspended or terminated, along with reasons for these actions. The record should also contain the physical addresses and phone numbers of every outlet where cash services are provided. The records and information should be availed to the CBK upon request.

3. Train Staff and Employees

Adequately train and support their agents including offering agents with manuals detailing policies, rules, and operational guidelines and effective oversight over the activities of agents and cash merchants.

4. Maintain Interoperability

Kenya’s payment systems do not operate in silos. PSPs must use systems capable of interoperating with other payment systems for a smooth user experience across platforms.

6. Compliance

PSPs must comply with technical standards issued by the CBK  and any other international standards as set out in the Third Schedule of the CBK’s Risk Management guidelines.

7. Establish a Trust and have Independent Trustees

All PSPs must establish a Trust, ensure all monies received are held in the Trust Fund and employ appropriate risk mitigation strategies to ensure that the funds held in the Trust Fund are sufficiently diversified and placed in commercial banks licensed under the Banking Act.

Additionally, PSPs must establish effective, transparent and adequate governance arrangements to ensure the continued integrity of its service including a broad-based Board of Trustees, clearly defined and documented organizational arrangements and segregation of duties and internal control arrangements to reduce the chances of mismanagement and fraud.

In conclusion, getting a PSP Licence, although a remarkable achievement, is not the final step when it comes to running a Payments Company. To ensure your license is not revoked and it is renewed every year,  PSPs ought to exercise due diligence, maintain proper records, comply with the law and establish a Trust to safeguard customer funds.

 

Secondly,

 

Understanding PSP Licensing in Kenya

The National Payment Systems Act (2014) defines a Payment Service Provider (PSP) as any entity that facilitates electronic payments or manages a public switched network for payment services. A landmark 2022 High Court Decision further extended this definition to include companies utilizing the SWIFT banking infrastructure, meaning even back-end payment processors may require licensing.

Due to CBK’s strict regulations, obtaining a PSP license can be a complex and time-consuming process, particularly for foreign companies. However, aligning with CBK’s Kenya National Payments System Vision and Strategy (2021-2025)—which prioritizes affordability, security, and interoperability—can significantly improve approval chances.

Types of PSP Licenses in Kenya

1. License for Electronic Retail Transfers

This license allows businesses to process retail transactions and e-commerce payments. Companies like Pesapal use this license to facilitate payments for hotels, airlines, and online stores. The transaction limit for certain businesses has increased to KES 250,000.

2. License to Act as a Small E-Money Issuer

Ideal for businesses offering digital wallets with limited transaction values (up to KES 10,000 per transaction). It requires a lower core capital of KES 1,000,000. Large corporations like Coca-Cola could leverage this license to facilitate internal staff payments.

3. License to Act as an E-Money Issuer

This license permits companies to issue e-money backed by fiat currency and accepted by third parties. A notable example is Kenya Airports Parking Services (KAPS), which enables cashless parking payments.

4. License for Designation as a Payment Instrument

This license is required for businesses that operate payment instruments such as mobile wallets, debit/credit cards, or digital payment methods. A well-known example is M-Pesa, which enables millions of Kenyans to send, receive, and store money electronically.

5. License for Designation as a Payment System

The most comprehensive PSP license allows businesses to own and manage payment infrastructure. A prime example is PesaLink, which facilitates real-time interbank transfers across financial institutions in Kenya.

How to Obtain a PSP License in Kenya

1. Choose and Register a Business Name

Submit three proposed business names to CBK for approval. Once approved, reserve the name with the Registrar of Companies. You can skip this step if your company is alread registered and conducting business.

2. Submit an Application to CBK

Schedule a preliminary meeting with CBK to discuss licensing requirements and compliance expectations. You can also simultaneously submit the application requirements you have at this point.

3. Provide Company Details

Submit the following details for assessment:

• Trustees for the custodial trust account
• Significant shareholders
• Directors and senior managers

CBK evaluates the integrity, qualifications, and financial history of these individuals to ensure compliance with regulatory standards.

4. Submit Required Documents & Fees

• Application fee: KES 5,000 (USD 50)
• Authorization fee: KES 100,000 (USD 1,000)
• Proof of minimum core capital: KES 5,000,000 (USD 50,000)

Conclusion

Choosing the right PSP license is crucial for success in Kenya’s competitive payments industry. Ensuring compliance with CBK regulations and aligning with the country’s financial vision can streamline the licensing process. Companies should also seek expert legal guidance to navigate complex regulatory requirements efficiently.

Thirdly,

As we closed the year in 2023, the Central Bank of Kenya (CBK) issued a cautionary notice warning fintech companies from offering payment services without first acquiring a licence. This is not the first time that the Central Bank of Kenya has gone after fintechs, in July 2022, the Bank cautioned banks from dealing with FlutterWave and ChipperCash over the fact that they were not licenced.

This has caused anxiety in fintech circles as many companies try to determine whether they qualify as Payment Service Providers (PSPs) or not.  The National Payment Systems Act 2014 defines a PSP as either a person, company or organisation acting as provider in relation to sending, receiving, storing or processing of payments or the provision of other services in relation to payment services through any electronic system.

The Act also states that any person, company or organisation which owns, possesses, operates, manages or controls a public switched network for the provision of payment services or processes or stores data on behalf of such payment service providers or users of such payment services is a PSP and needs to be licensed.

This definition was expanded by the Court in 2022 in the case of Kenya Commerce Exchange Service Bureau Limited (Kenex v Central Bank of Kenya (Constitutional Petition E181 of 2021) [2022] KEHC 13189 (KLR) (Constitutional and Judicial Review) (30 September 2022) (Judgment) where the Court added that any company that has systems that rely on access to the SWIFT banking infrastructure is a Payment Service Provider. The Judge said that a Payment Service Provider does not strictly refer to a company that sends or receives messages or processes payments or other messages on behalf of banks.

The reason that this is worrying is that getting a licence to act as a Payment Service Provider is not a walk in the park, it requires a substantial investment moneywise and can take a long time, sometimes even years especially for foreign companies.

However, this process can be simplified when fintechs align their application with CBK’s long term plan. This long term plan is outlined in the Kenya National Payments System Vision and Strategy, 2021-2025. Fintechs must ensure that their products are customer centric, affordable to the common mwananchi (citizen), secure and interoperable with the current banking infrastructure.

Additionally, foreign companies seeking the licence ought to demonstrate how issuing them the licence will benefit Kenyans in the long run, this can be done by incorporating Kenyans in their governance structures and workforce as well as setting aside a small part of their profits for corporate social responsibility.

Are you considering getting a licence with the Central Bank of Kenya?

You first need to register a company in Kenya. You then get registration as a Data Controller under the Data Protection Act. Once that is done if you get licensing from the Communication Authority of Kenya. This is done through a complete application filed detailing the telecommunication infrastructure to be used and cyber security structures. You then apply for Central Bank of Kenya license which takes between 6 months to 12 months for vetting and approval and licensing as a payment services provider. In all these steps you will need evidence of your KYC due dilligence processes and compliance with Anti Money Laundering laws. We shall guide you through a seamless process. Kind regards. Elvis Abenga- Advocate of the High Court. Begi's Law Offices & Chambers

You first need to register a company in Kenya.
You then get registration as a Data Controller under the Data Protection Act.
Once that is done if you get licensing from the Communications Authority of Kenya. This is done through a complete application filed detailing the telecommunication infrastructure to be used and cyber security structures.
You then apply for Central Bank of Kenya license which takes between 6 months to 12 months for vetting and approval and licensing as a payment services provider.
In all these steps you will need evidence of your KYC due dilligence processes and compliance with Anti Money Laundering laws.
We shall guide you through a seamless process.
Kind regards
Elvis Abenga- Advocate of the High Court
Begi's Law Offices & Chambers

Operating a mobile payments service in Kenya requires authorisation from the Central Bank of Kenya (CBK) as a Payment Service Provider (PSP) under the National Payment System Act and the supplementary Regulations. The licensing process involves pre-engagement with CBK, submission of a detailed application (covering governance, Anti-Money Laundering measures, data protection, IT systems and consumer protection frameworks) and regulatory review before authorisation is granted.

Once licensed, PSPs are subject to continuous supervision and must comply with obligations under Anti-Money laws, the Data Protection Act, and the various laws on consumer protection and reporting requirements. This includes implementing risk-based KYC procedures, transaction monitoring, data privacy controls, clear disclosure of fees and limits and regular reporting to CBK and the Financial Reporting Centre (FRC).

The Kenya regulatory environment demands careful preparation and sustained compliance. We would be glad to continue this conversation and support you through the licensing and compliance journey. We will provide legal guidance throughout the application for licensing process inclusive of incidental advisories, review of requisite policies and manual as well contracts. Kindly reach out to us via the email provided herein to discuss your specific plans in greater detail.