OPINION: Robust, open digital public infrastructure will boost Kenya’s economic gains

Digitisation will deliver a big chunk of Kenya’s economic and social gains over the next decade. But, for the transformation to happen more affordably and quickly, we need robust and open digital infrastructure.

The good news is that this infrastructure class is being rolled out across emerging markets and development approaches are becoming more standardised.

In 2023, at the G20 meeting in India, there was the first-ever multilateral consensus on what constitutes digital public infrastructure (DPI).

Interoperable fast payment systems are at the heart of DPI. They allow citizens, businesses, and governments to instantly send and receive money, regardless of their bank, financial service or telco. They make it easier to deliver more services, more cheaply to more people.

Instant digital payments have already made gains in Kenya. Many Kenyans can transact instantly via mobile apps and USSD platforms or internet portals, which is a game changer.

But transactions are (mostly) happening within closed-loop systems, which creates barriers.

These barriers can lead to unnecessary costs and inefficiency when consumers want to transact outside a closed-loop system. It also means Kenyans need to manage different apps and multiple digital credentials.

One of the key outcomes expected under DPI is the ability to transact with anyone, anywhere, anytime. Payments and data should seamlessly flow across different ecosystems.

This would mean that citizens could transact for any essential service, without having to first move money from one place to another. This will help businesses and the government roll out products that make life easier for Kenyans.

It will help us design and build for scale while focusing on reducing costs and complexity. When payment systems work together and are open, it lowers barriers for new market entrants.

This boosts competition, which (with the right policy guardrails) also improves service levels and affordability.

The G20 Consensus recognises that the development of DPI in each country will be very different. But it stipulates that the results should be safe, secure, trusted, accountable and inclusive.

It sets out overarching development principles broadly covering technology, the ecosystem, and its governance.

Technology

This must be resilient and capable of evolving to meet changing needs at scale. DPI should be open-source, technology-neutral and interoperable.

Kenya has made strides with the widespread adoption of ISO 20022 (the global standard messaging protocol for instant payments) driving interoperability.

But work is still needed on a carrot-and-stick approach to tech interoperability. Industry and regulatory discussions are underway and expected to conclude by the end of 2024.

Ecosystems

One of the principles of ‘good’ DPI is that the industry should be empowered to deliver market innovation and efficient service delivery.

Much of Kenya’s instant payment infrastructure has been developed by the private sector. This is not uncommon. The UN’s DPI playbook references India’s Paytm as a national ecosystem developed by the private sector and Sweden’s Swish was built by a business consortium.

However, the private sector needs shareholder and regulatory incentives towards collaboration. Integrated Payments Services Limited's (IPSL) principal shareholder is the Kenya Bankers Association (KBA).

It has mandated the company to drive collaboration beyond banks to telcos, SACCOs and fintechs.

Over 65 institutions are now integrated into the PesaLink instant payment rails, and more are being added.

IPSL is also discussing with public and private stakeholders about further opening participation in PesaLink and its governance. But the industry still needs the right policy and legislation to bring it onto a level playing field.

Governance

Complementary regulatory and policy frameworks are not just about collaboration. They are also needed for systems to be inclusive and secure.

The DPI Consensus outlines key areas like public benefit, trust, transparency and grievance redress mechanisms.

Payment operators and data processors in Kenya have made strides in these areas. Most have clear data protection policies in place.

But dispute management processes standardisation and reporting are still lagging, which requires attention from the industry and the regulator.

The recent grey-listing of Kenya by the Financial Action Task Force shows emerging issues bubbling around how our institutions are checking and sharing data on suspicious payments.

In this case, the industry needs to be able to share more information to inform a risk-based approach to identifying proceeds of corruption as well as terrorism and proliferation financing.

Kenya’s National Payment System Act is under review, by the Central Bank of Kenya and the industry. Updated legislation and regulations will be important and welcome.

At IPSL we believe we are at an exciting and crucial point in Kenya’s digital transformation.

We need to get the right balance between open, interoperable technology with robust governance and resilient local ecosystems.

The prize is massive, accelerated progress towards the Sustainable Development Goals and better lives for all Kenyans.

Gituku Kirika is the CEO of IPSL. The company is owned by KBA and operates the PesaLink instant payment network.