The current digitized economy innovation has created a wide selection of mobile and online payment solutions and products. The Central Bank of Kenya on July 4, 2023 released thirty (30) names of Authorized Payment Service Providers (PSPs) operating in Kenya. The list included notable companies such as Safaricom PLC, Airtel Money Kenya Limited, Pesapal Limited among other.
Arguably, Payment Service Providers (PSPs) have played a critical role in increasing access and use of financial services. The effect has been a reduction in poverty, an increase in opportunities and living standards for people across the nation. Progress in the area of mobile and online payment services has led to the need for Central Banks to create regulatory framework aimed at ensuring that the sector is structured and thus guaranteeing the secure and efficient functioning of this industry.
Definition of a Payment Service Provider (PSP)
Section 2 of the National Payment System Act, 2011 defines a payment service provider as:-
(i) 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;
(ii) a person, company or organisation which owns, possesses, operates, manages or controls a public switched network for the provision of payment services; or
(iii) any other person, company or organization that processes or stores data on behalf of such Payment Service Providers or users of such payment services;
Authorization Process
In Kenya, the Authorization Process of a Payment Service Provider (PSP) in Kenya is undertaken by the Central Bank of Kenya’s Department of Banking and Payment Services (the “Bank”) and is guided by the provisions of the National Payment System Act, 2011 (the “Act”) and the National Payment System Regulations, 2014 (the “Regulations”).
A person (defined to include includes any legal entity including a trust at Section 2 of the Act) who wishes to make an application for registration as a Payment Service Provider (PSP) must follow these steps in order to receive an Authorization Certificate;
1. Apply to the Bank for approval of the proposed name and shall forward three (3) proposed names in order of preference to the Bank for consideration. This is aimed at ensuring that the proposed name(s) is not similar to one that exists on the Bank’s database. (Reg. 6 (1) and (2));
2. Once the Bank accepts the proposed name, the same will be reserved with the Registrar of Companies. (Reg. 6 (4));
3. If the application is for a new product, the applicant is required to apply to the Bank for an approval of the name of the proposed product subject to any intellectual property rights that may be in existence. (Reg.7 (1));
4. The Bank then proceeds to assess the suitability of the trustees, significant shareholders, directors and senior managers in control of a Payment Service Provider. (Reg. 8);
5. The criteria for assessment of the trustees, significant shareholders, directors and senior managers is outlined in the Second Schedule of the Regulations to include among others an assessment on whether they possess adequate professional credentials or experience or both for the position for which it is proposed; reputation, character, integrity and honesty; history of any offence involving fraud, dishonesty or violence etc;
6. Within thirty (30) days of receipt of an application, the Bank may request for additional information from the applicant if the information submitted is not complete or if the Bank considers it necessary. (Reg. 5 (3));
7. If the application is complete and the Bank is satisfied that the applicant has met all the requirements, the applicant shall be notified to pay the authorization fees as set out in the First Schedule. (Reg. 5 (5));
8. Within seven (7) days of receipt of authorization fees, the Bank shall issue the Applicant with an Authorization Certificate (Reg. 5 (6));
Governance
It is instructive to note that the Act stipulates that a person (defined to include any legal entity including a trust at Section 2 of the Act) can apply for registration as Payment Service Provider (PSP). However, for purposes of management and governance, a Payment Service Provider engaged in electronic retail transfers, e-money issuance as well as other commercial, a board of trustees is required. To that end, a Trust must be registered under the Trustee (Perpetual Succession) Act. (Reg. 25).
This write-up is for informational purposes only and should not be construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Gregory Makambo, Partner, (gmakambo@makambolaw.com), Diana M. Kimiti, (dkimiti@makambolaw.com) or your usual contact at our firm, for legal advice.