KENYA: CBK set to regulate financial super-apps

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

The platforms host apps from different businesses including banks, airlines, and utility firms, making them popular among consumers seeking the convenience of a one-stop solution. The M-Pesa app, for instance, has seen downloads of more than five million on Play Store.

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

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

“The regulatory framework will need to be agile to regulate super-apps offering e-commerce, loans, insurance products, investing platforms, etc. within the same platform. Collaboration among different sector regulators will be critical for a 360-degree oversight of super apps.”

The CBK has not indicated the shape that regulation of super-apps could take. It is, however, likely to feature the establishment of separate subsidiaries supervised and reporting to the regulator.

A super-app constitutes several “mini-applications” that provide tailored services, using one integrated interface or platform.

The M-Pesa app, for instance, warehouses applications from service providers such as DStv, Madaraka Express, booking firm BuuPass, NHIF. It also houses savings and credit platforms backed by banks –KCB M-Pesa and M-Shwari (by NCBA).

Little by Craft Silicon also offers a wide array of services, including payments, transport and shopping, and entertainment.

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

“Banks will need to decide soon whether they plan to be a front-office player within a super app, a back-office enabler, or simply a piece of regulated infrastructure in the future — and then start investing and evolving towards achieving that vision,” KPMG said in a brief.

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

KPMG says that while the services in the super-apps are being originated and underwritten by traditional financial institutions, this still means that these institutions are being moved one step further away from their customers.

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

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

Super-apps have an even greater appeal by bundling banking apps with others in diverse sectors including insurance, entertainment, transport, and utilities.

Transactions in the super-apps ecosystem run into billions of shillings per day and bring together different companies and their consumers in a complex knot.

The platforms are seen as the future of financial technology (fintech), causing regulatory unease across Kenya and other jurisdictions as they grow faster than mainstream banking.

The use of traditional bank accounts in the country dropped to 23.8 percent last year from 29.6 percent in 2019, according to the 2021 FinAccess Household Survey.

The uptake of mobile money on the other hand has grown to more than 60 percent of the total population.

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

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

Chinese authorities are worried that the risks posed by the fintech firms could be substantial as they offer consumer loans that they fund from borrowings sourced from banks and other sources.

The super-apps are riding on the mass adoption of smartphones which consumers carry everywhere they go.

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

Safaricom, which has the largest market share in mobile telephony services, has recorded a fast growth in the users of its super-app built off its mobile money platform.

The number of smartphones in Kenya had grown to 26 million in the quarter ended September 2021, accounting for 44 percent of the total 59 million mobile devices in use in the period.

Falling internet charges and smartphone prices are expected to lead to further uptake of smartphones and fintech services built on them.

BusinessdailyAfrica / Edna Mwenda /