Reporting by Seth Onyango, bird story agency

Kenya is set to open its fintech market to M-pesa challengers, with the Central Bank's (CBK) recent push for a new licensing regime to stimulate growth and innovation.

This move is expected to diversify the financial services available to Kenyan consumers and businesses while allowing a wider range of fintech firms to compete.

Among those vying for these new licenses are Nigerian fintech powerhouses Flutterwave and Chipper Cash, alongside a host of other ambitious applicants. 

A new push to further liberalise Kenya's mainstream digital payments market that gave M-pesa an edge comes just six months after Flutterwave was let off the hook by a Nairobi court over allegations of money laundering and fraud.

Flutterwave's legal woes in the East African nation had threatened to cripple its ambitious growth strategy that made it the darling of venture capitalists globally.

But Flutterwave and other fintechs will now soon face off with M-Pesa, the region’s mobile money behemoth once the new Payments Sytems Act goes live.

CBK Governor Kamau Thugge is upbeat the bank’s bid to modernise the payments statute, originally crafted in 2011, will further entrench digital payments solutions in that market.

Thugge asserts the proposed regime will create a contemporary legal framework that supports the operational needs of today's fintech firms.

“We are in the process of updating and amending the Payments Act, basically coming up with a new act,” Thugge announced, hinting at a future where Kenya’s fintech sector could rival the groundbreaking impact of M-pesa.

Businesses set to benefit most from the  revamped Act are those offering remittance and payment services, the mainstay of M-pesa.

Until now, M-pesa has remained unchallenged in Kenya, with consumers and telcos decrying monopoly. But the financial and creative firepower promised by Flutterwave and Chipper Cash's entry could upset that status quo.

It will be a reprieve for Kenya’s digital payments sector which is often criticised for its complacency due to a lack of robust challenges to M-Pesa’s dominance. 

M-pesa, which is owned by Safaricom, the largest mobile network operator in Kenya, has more than 55 million users and processes over 80% of the country’s digital payments. It has extended its services to other countries in the region.

However forthcoming regulatory changes are set to create a more welcoming environment for fintech companies to operate legally and securely. 

By levelling the playing field with established commercial banks and telecommunications companies, the CBK hopes to stimulate innovation and enhance the diversity of financial services available to Kenyan consumers and businesses. 

This approach mirrors the transformative impact M-PESA had on the mobile money market, which revolutionized financial inclusion in Kenya and beyond.

Currently, Kenya’s financial regulations, including the Central Bank of Kenya Act and others, have been criticized for their ambiguity. 

This lack of clarity has led to conflicts between fintech operators and authorities, resulting in enforcement actions. 

Agencies like the Financial Reporting Centre (FRC) and the Asset Recovery Authority (ARA) have frozen accounts and seized assets over money laundering allegations.

However, a court ruling last year in favour of Flutterwave seems to have had a ripple effect, catalyzing the push for these new proposed changes. 

This judicial decision highlighted the necessity for clear and supportive regulations, prompting the CBK to accelerate its efforts to modernise the regulatory framework.

The regulator's overhaul of the Payment Systems Act is poised to catalyse a surge in fintech activity and bring down the cost of digital transactions. 

According to a report by the World Bank, Kenya has one of the highest fees for mobile money transactions in Africa, averaging 11% of the transaction value. 

Flutterwave and Chipper Cash’s entry, therefore, could significantly help lower those fees as it chases its ambition to become the leading payment platform in Africa and beyond.

bird story agency