Examining the adequacy of the regulatory framework for mobile payment services : milestones, challenges and solutions
Kenya’s mobile payment services sector has over the last few years been revolutionised with the introduction of innovative products such as M-Pesa, Airtel Money, M-Shwari amongst others. With a customer base of over 20 million users, the sector has grown despite the lack of a standalone legal and regulatory framework. The position has since changed with the introduction of a new standalone regulatory framework that came into effect in 2014. Further, the role of various regulators and in particular the Central Bank of Kenya, Communications Authority and Competition Authority is critical in providing the sector with the necessary support for it to flourish. The purpose of this study was to examine the adequacy of this new legal and regulatory framework both from the perspective of the regulator and the key market participants. Being a dynamic sector, the existing regulatory framework was examined on its capacity to overcome present day challenges such as cyber-crimes, coordination failure between commercial banks and telecommunication firms and on its capacity to provide a favourable business environment for telecommunication companies to operate. A qualitative research methodology approach was utilised. The respondents from amongst the regulators were the Central Bank of Kenya, Communications Authority and Competition Authority of Kenya. Respondents from the mobile payment services sector were Safaricom and Airtel, who account for more than 90% of market share. In terms of the legal and regulatory framework, this was found to be adequate though it was fairly new in the market. Mobile payment service providers proposed that trial run periods be introduced to allow for testing of innovative products. In terms of cooperation and interoperability, some progress had been made interconnecting systems though tangible positive results were yet to be realised. The dissertation concludes that the regulatory framework be implemented in full to allow the regulations to be tested across the sector. Licensing processes should be time bound and published in widely available service charters. For purposes of competition, the setting up of an industry-led mobile payment services management body or institution that can facilitate collaboration efforts was viewed as the best possible option. This would drive self-regulation as well as handle the complex challenge of network effects posing an advantage for one firm over another. Specific recommendations point to the requirement to the provision of insurance cover for funds held in a fiduciary position and the creation of an emergency special fund. These recommendations are key to providing the required support should the mobile payment services system suffer from systemic shocks such as receivership of the custodial bank or wide spread cyber-crime attack on the system.