Kenya’s Payment Rails & How They Work – M-PESA, PesaLink & Mobile Payment Innovation

Over the last 20 years, Kenya's economy has changed a lot. It used to be largely cash-based, but now it boasts one of the best mobile payment systems in the world. M-PESA Kenya and PesaLink Kenya are two new payment systems that have fundamentally revolutionised how money travels in the country. These are the key causes for the transformation. These platforms have made it much easier for Kenyans to receive money, sped up transactions, and established a contemporary, inclusive Kenyan payment system that is gaining a lot of attention from across the world. All of this is happening in a good regulatory environment and a rising fintech industry.

M-PESA Kenya: The Mobile Money Pioneer

M-PESA was first offered by Safaricom and Vodafone in March 2007. It immediately became the most popular way for Kenyans to send and receive money. One of the most common ways to pay with your phone is M-PESA. It was made to let those who don't have bank accounts get financial services quickly, cheaply, and safely.

By January 2010, M-PESA was doing more business in the US than Western Union was doing around the world. It has 9 million subscribers who have signed up, which is 40% of Kenya's adult population. By 2023, the platform had processed 20 billion transactions, which equalled 59% of Kenya's GDP. Millions of Kenyans now use their cell phones as personal banks because so many people do.

How M-PESA works in Kenya

People with basic cell phones can use M-PESA because it is easy to use, but it works very well. Customers can use a SIM card app to use the service after registering at approved retailers and linking their phone number to an electronic money account.

There are more than 80,000 agents across the country who manage deposits and withdrawals, changing cash into electronic value and vice versa. Secure SMS technology is used to approve transactions in real time, such as paying bills, buying airtime, and transmitting money from one person to another.

Key features are:

cheap fees for transactions (around $0.33 for minor withdrawals and $0.40 for P2P transfers).
There are approximately five times as many places to get it as there are bank branches, ATMs, and post offices combined.
complete support for customer balances with deposits in banks that are licensed.

The first "send money home" promotion on the site was about sending money back to Kenya, which is an important source of income for 17% of Kenyan households. Because of this, adoption rates went up quickly, especially in rural areas where traditional banking isn't as widespread.

PesaLink Kenya: Transfers Between Banks Right Away

In 2017, the Kenya Bankers Association created PesaLink Kenya to make it easier to move money across banks. The most popular mobile wallet in the world is M-PESA. Integrated Payment Services Limited (IPSL) runs PesaLink, which links more than 30 banks and three payment service aggregators so that payments can be made 24/7 in real time.

You can send up to KSh 1 million with PesaLink. You can do this through bank branches, USSD codes, internet banking, and mobile banking apps. You can utilise mobile numbers as fake names to conclude transactions, so you don't have to remember a lot of account information. PesaLink was first made using the ISO 8583 messaging standard, but it is now switching to ISO 20022 to make it easier for bank accounts and mobile wallets to connect to each other and to keep up with global trends in modernising payments.

Also read: Mali’s Payment Rails & How They Work – GIM-UEMOA, Mobile Money & Expanding Digital Access

New concepts for mobile payments in Kenya

Kenya's success with mobile payments has sparked a number of new ideas in the fintech field. The country is today proud of:

More openness through transaction solutions based on blockchain.
Neo banks are delivering banking services that work through apps.
You can get digital credit with Faraja (Buy Now, Pay Later) and Fuliza (overdraft).
M-PESA and PesaLink will help you link your bank accounts and wallets.

The COVID-19 pandemic made people stop using currency even faster. It made banking on mobile devices the norm rather than the exception.

The regulations and issues in the market

A large part of this change is thanks to the Central Bank of Kenya (CBK). It said that all customer money had to be stored in licensed banks, but it let Safaricom administer M-PESA without following the laws that banks have to follow. To make sure customers get the most out of their funds, the interest they earn goes to a non-profit trust. To stop money laundering, the CBK also limits the size of transactions.

But there are still problems. We need better legislation to keep people safe. Fintechs have to follow tougher licensing laws than in some other African countries, and competition between traditional banks and mobile money providers can be unfair. The CBK has also told individuals to be careful while using cryptocurrencies, which demonstrates that they are following the rules.

Impact on Traditional Banking

Traditional banks have been forced to rethink how they do business because more and more people are using mobile payments. A lot of them now offer additional digital banking features, cooperate with payment platforms, and provide services connected to mobile money. Things like mobile overdrafts and BNPL services are possible because of M-PESA partnerships. PesaLink, on the other hand, provides banks with an edge when it comes to rapid payments. This partnership is making the Kenyan payment system more flexible and working better together.

Also read: Case Study: How TransFi Enabled a P2P Exchange to Offer Direct Fiat-to-USDT Conversions

Payments Between Nations Kenya: The Next Place to Grow

Kenya's modernisation of payments is also making it easier to transmit money between countries. PesaLink's work on making interoperability better will eventually make it possible to move money across borders swiftly and affordably. In the interim, M-PESA has worked with companies that send money around the world. This could totally transform how people in the area pay for trade and how people living abroad send money home.

Scaling Payments with the Right Partner

Companies that wish to enter Kenya's rapidly expanding digital banking and mobile payments sector need to collaborate with a supplier that has a lot of experience.

Transfi's payment solutions that are based on APIs operate well with Kenyan payment systems like M-PESA and PesaLink. Transfi has the skills and tools to work in one of the most advanced payment markets in the world. This might be done by allowing quick transfers from wallets to banks, making it easier for merchants to accept payments, or adding facilities for sending money across borders. Call our sales team to chat about how we can help your business in a unique way.

Conclusion

PesaLink and M-PESA have changed the way Kenyans pay for products. This has made the financial system work better, faster, and more easily. These platforms are not only transforming how people do business at home, but they are also making it possible for payment systems that use blockchain technology to function together around the world. Kenya is still the finest place in the world to modernise payments because it has a robust fintech industry and rules that are ahead of the curve. The country is a market full of opportunities and a great example of how to be creative for businesses and investors.

FAQs:

1. How does M-PESA function in Kenya?

With M-PESA, users can deposit and receive money, save it online, send it to other people, pay bills, and buy airtime through agents. Real-time SMS authorisation protects all of these actions.

2. What does PesaLink do in Kenya?

You can transmit money from one bank to another right away with PesaLink, up to KSh 1 million. You can accomplish this in branches, through USSD, online banking, and mobile apps.

3. Do M-PESA and PesaLink work together?

Right now, bank transfers and wallets are two independent systems. However, there are plans for the future for them to work together without any problems.

4. What makes mobile payments function in Kenya?

There are a lot of agents, low transaction costs, and a significant demand for domestic remittances, which are all important aspects.

5. What will happen to Kenya's financial systems in the future?

Expect to see more individuals use open banking and blockchain solutions, more quick payments across borders, and payment rails that operate better together.

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