CBK set to regulate financial super-apps


CBK set to regulate financial super-apps

A user with a Safaricom app. FILE PHOTO | NMG

The Central Bank of Kenya (CBK) has announced it will start regulating super financial apps such as Safaricom’s M-Pesa and Craft Silicon’s Little, with the regulator saying the platforms have the potential to book more transactions that were traditionally handled directly from the banks.

The platforms host apps from different companies, including banks, airlines, and utility companies, making them popular with consumers looking for the convenience of a single solution. The M-Pesa app, for example, has seen over five million downloads on the Play Store.

“Super apps are integrating financial services into their platforms to provide seamless payment experiences for their customers.

For banks, this means that an increasing number of users can bypass banking apps and just use the more integrated super-app,” the CBK says in its latest banking supervision report.

“The regulatory framework will need to be nimble to regulate super-apps offering e-commerce, loans, insurance products, investment platforms, etc. within the same platform. Collaboration between the various industry regulators will be key for 360 degree oversight of super apps. »

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The CBK has not indicated what form super-app regulation might take. However, it is likely to be characterized by the creation of separate subsidiaries supervised and under the control of the regulator.

A super-application is made up of several “mini-applications” that provide tailor-made services, using an integrated interface or platform.

M-Pesa app, for example, stores apps from service providers like DStv, Madaraka Express, BuuPass reservation company, NHIF. It is also home to bank-backed savings and credit platforms – KCB M-Pesa and M-Shwari (by NCBA).

Little by Craft Silicon also offers a wide range of services, including payments, transportation and shopping, as well as entertainment.

Audit firm KPMG says banks, which are regulated, need to think about how they fit into the super-app phenomenon, which is a big trend in China and other Asian markets.

“Banks will soon have to decide whether they plan to be a front-office player within a super app, a back-office enabler or just a piece of regulated infrastructure in the future – then start investing and to move towards realizing this vision,” KPMG said in a brief.

Super apps like WeChat and Alipay in China offer a range of basic banking, savings and investment products to customers.

KPMG says that even though super app services are created and underwritten by traditional financial institutions, it still means those institutions are moving a little further away from their customers.

ALSO READ: Eight million Kenyans send and receive money on third-party phones

“Much like what happened in the insurance industry with platforms and aggregators, traditional financial institutions may quickly find that they have been relegated to performing regulated activities while super apps retain the customer experience and relationship,” the business advisory firm said.

Banking apps have become popular among customers who seek the convenience of round-the-clock virtual transactions.

Super apps have even greater appeal by bundling banking apps with others in various industries, including insurance, entertainment, transportation, and utilities.

Transactions in the super app ecosystem run into billions of shillings per day and bring together different businesses and their consumers in a complex node.

Platforms are seen as the future of financial technology (fintech), causing regulatory unease in Kenya and other jurisdictions as they grow faster than traditional banks.

Traditional bank account usage in the country fell to 23.8% last year from 29.6% in 2019, according to the 2021 FinAccess Household Survey.

Mobile money adoption, on the other hand, has reached over 60% of the total population.

China cracked down on giant fintech company Ant Group in November 2020, scuttling its $35 billion initial public offering (IPO) and ordering it to set up a holding company so it could be regulated like a bank.

The company had operations spanning lending, insurance, and wealth management that were lightly regulated.

Chinese authorities fear that the risks posed by fintech companies are substantial, as they offer consumer loans that they fund from borrowings from banks and other sources.

ALSO READ: Digital Lenders To Reveal Source Of Funds In CBK’s Dirty Money War

Super-apps are banking on the mass adoption of smartphones that consumers take with them everywhere.

A smartphone is a mobile phone with advanced features, including Wi-Fi connectivity, web browsing capabilities, a high-resolution touchscreen, and the ability to use apps. Most devices run on Android and iOS mobile operating systems.

Safaricom, which has the largest market share in mobile phone services, has seen rapid growth in the number of users of its super app based on its mobile money platform.

The number of smartphones in Kenya increased to 26 million in the quarter ended September 2021, representing 44% of the total 59 million mobile devices in use during the period.

Falling internet fees and smartphone prices are expected to drive greater adoption of smartphones and fintech services based on them.

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