Properly regulate payments system

The mobile money business appears set to enter a new era of stiffer regulation of consumer prices by the Central Bank of Kenya (CBK). 

Going by recent trends, it is clear that the financial sector regulator is increasingly becoming assertive and raring to flex more muscle by invoking its powers under the National Payments Systems Act.

The first sign of the coming regulatory regime was the move in March last year when CBK came out to direct a raft of consumer protection measures, including removal of charges and fees on small volumes of M-Pesa transactions.

The measures were part of a package of tax waivers the government introduced last year to cushion the public from the effects of the coronavirus pandemic.

If you think that this was just but a single episode in response to the pandemic, you are wrong. You are also wrong if you believe that CBK is not just about to return mobile money business to the days when one Sara Wainaina, the last holder of the defunct Office Price Controller of Kenya, used to administratively set and dictate consumer prices of goods and services.

It did not surprise that, when the tax waivers had lapsed at the end of June, and even after the government had withdrawn the tax holiday it had introduced, the signal from the regulator was that it wanted the waivers on M-Pesa payments extended to December.

But the strongest evidence that CBK will, going forward, want to play a bigger role in price regulation of mobile money is to be found in the contents of the draft national payments systems strategy that it circulated recently.

The tone and phraseology of the document reflects the mindset of a regulator preparing to be more assertive in the competition regulation stage. Phrases like “concentration of economic power”, “periodic reviews to investigate the level of pricing” and “market behaviour that impedes consumer choice” appear several times.

We also read from the document that CBK will regularly engage the Communications Authority of Kenya (CA) to enable effective monitoring of pricing practices.

Whether the market will perceive these changing trends as a deterioration in the regulatory risk environment for the mobile money business in Kenya is not for me to say. However, the stage would appear to be set for turf wars between the two regulators in this pace —namely; the Central Bank and CA,  the primary regulator of this space.

Divided opinion

Competition experts present divided opinion on who between the regulators is the ultimate authority on consumer protection issues in this space. 

It seems to me that, if you decide to treat an entity like M-Pesa as a “technology platform” and an integral part of the national payments system, then it is under the Central Bank. On the other hand, when you treat M-Pesa as strictly a payments service that is subject to consumer protection laws and price regulation, then it falls under the regulatory domain of CA.

Which begs the question: Did the Central Bank engage in regulatory over-reach when it imposed a freeze on M-Pesa charges in March? The jury is out.

Yet the overlaps between these two regulators should count as a minor issue when we are discussing our national payments. In my view, the biggest issue is security.

If there is one thing I support completely in the Central Bank’s new national payments systems strategy, it is the ambition to enhance the security of the system.

M-Pesa has, over the years, evolved into an integral part of our national payments system, moving billions of shillings every day. Yet we still don’t have an effective system of protecting M-Pesa from abuse and infiltration by money launderers and terrorists. Here we have a national payments system that repeatedly falls prey to narcotic trade, cross-border charcoal trade and terrorist financing.

We did not learn a lesson from the terrorist attack on Dusit D2 Hotel. The evidence presented in court during the prosecution of the terrorists revealed chilling details of how these criminals had become adept at exploiting loopholes in our mobile money systems to effect illicit financial flows.

The prosecution produced evidence showing how terrorists managed to use false identification documents to obtain subscriber status within systems of some of our big telcos. The terrorists succeeded because they had managed to register and establish multiple distributor agency shops across Nairobi. In this way, they were able to withdraw large sums of cash from banks.

Rules restricting amounts that can be withdrawn were circumvented by disguising the huge cash amounts they were withdrawing from banks as ‘float’ to be transported to distributor shops.

If we don’t seal the loopholes they exploit to move illicit money, the running of the country will soon be in the hands of the underworld.

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