Mobile Banking Regulation in Kenya: Which Way, Bank Based or Telco Based?

Abstract

The advent of information technology has revolutionized the manner banking business is conducted in Kenya and the world in general. Initially, banking business was carried out within the bank premises but now one can enjoy bank services from any place courtesy of information and communications technology. By use of a mobile phone and the information technology, customers are able to enjoy a wide range of services including mobile accounting, mobile brokerage and mobile financial information. In Kenya, mobile phone companies in conjunction with the Central Bank of Kenya have launched various mobile banking services. These mobile services may be grouped into either bank-led or te1co led depending on which sector establishes direct relationship with the customers. Telco-led services include M-Pesa by Safaricom, Airtel's Zap and YuCash by YU. Bank-led services include M-Kesho, Pesa Pap and Hello Money by Equity, Family and Barclays banks respectively. Mobile banking has brought many benefits which include access to financial services and instant services. On the other hand, mobile banking has also posed serious legal and regulatory challenges because of its technological nature of anonymity, impersonality and being instant. Some of the challenges include identifying the appropriate regulator, issues of privacy, confidentiality, security, interoperability of systems, consumer protection and contract formation challenges .. Further, the close relationship between telecommunications and mobile banking import some risks inherent in telecommunications like technological failure to mobile banking. Besides telecommunications risks, mobile banking is also susceptible to bank related risks such as credit risks, operational risks, systematic risks, fraud and identity risks. To address these legal and regulatory challenges, there is need to put in place a sound legal and regulatory regime. In Kenya several laws exist that seek to address some of these challenges but do so in a peripheral manner. The Banking Act, Central Bank of Kenya Act, Proceeds of Crime and Anti-Money Laundering Act and the Kenya Information and Communications Act are some of the laws that have useful provisions in regulating mobile banking. There are also a number of bills and draft regulations like Electronic Transactions Bill, National Payment System Bill and Draft Regulation for the Provision of Electronic Retail Transfers, Once enacted, these bills shall address some of these challenges. There is also a bit of technological regulations which depends on the manufacturer of the device and telephone company. Mobile banking depends on technology and monetary values hence invoke the mandate of both the Communications Commission of Kenya (CCK) and Central Bank of Kenya (CBK) respectively. This poses confusion as to the most appropriate regulatory body for mobile banking. CBK does not have the technological capacity to regulate on its own and the CCK does not have the financial capability to regulate independent of CBK. Neither, CBK nor CCK can do it on their own hence there is need for collaboration in mobile banking regulation. To address all these legal and regulatory challenges there in need to amend the existing laws and enact the pending bills to ensure full regulation of mobile banking. The collaboration efforts between CBK and CCK must be strengthened to ensure adequate regulation of mobile banking in Kenya.