Integrated Payment Services Limited: Instant Payments Solutions in Kenya by Agnes Gathaiya

Interview with Agnes Gathaiya, CEO of Integrated Payment Services Limited (IPSL)

What is your assessment of the payments solutions sector in Kenya and globally? What are you trying to achieve here now?

Payments right now is a very exciting area globally. In financial services right now, that is the area that is most disrupted. This is at a global scale. Everywhere you look, people and organizations are trying to respond to customers’ needs. Customers want speed, convenience, security, and they want their money now. In response to that, most financial institutions and indeed other organizations are innovating on a daily basis around payments to try and ensure that payments are faster but also delivered in an extremely secure environment. So, every day, there is something new coming out from the payments space. In Kenya, it is no different. Kenya has been ahead in the payments space in terms of innovation. This is the home of M-PESA. Very quickly after that, just over two years ago, Kenya launched its first instant payments solution that is driven primarily by banks. Instant payments refers to the ability to deliver payments directly from your bank account into anybody else’s bank account, regardless of who owns the bank account. Today, I am able to send money to a friend or a parent, but I am also able to make simple payments within the SME space, especially the SME space that is less organized. Two and a half years ago, we launched PesaLink which is an instant payments solution that is owned by the banking sector. All the banks came together and they built a switch and it is a shared service through which they are then able to provide instant payments solutions to their customers. They are able to provide a solution that starts off at about 10 KES which is about 10 cents USD all the way up to just short of $10,000 per transaction. The purpose of this solution or its main mandate is to contribute towards the government policy of making Kenya cash lighter. Today, in terms of value, just under 10% of all transactions go through some sort of digital channel. A lot of transactions that are still pretty large in terms of ticket size are still done using cash. There is an opportunity to sweep all that and change the behavior of people to start using digital channels. From a policy standpoint, Kenya is gearing up towards creating a 24-hour economy. This 24-hour economy will only happen if payments are also 24 hours. For smaller payments, these are driven through mobile wallets and that is happening now. For larger payments, it will happen from now. PesaLink enables you to move those larger transactions and be able to transact at any time of the day, be it day, night, or the early hours of the morning. Even as we innovate around payments globally, there is a lot happening locally. Kenya continues to be a trailblazer and on the cutting edge in terms of coming up with payments solutions that work with and respond to customers’ specific needs.

Are you looking for technological partnerships? How do you develop your technology?

There is an opportunity for us to scale. We currently have moved about 200 billion KES through our system, most of it in the last year. There is an opportunity for us to move much more.

Our switch is somewhere between a custom solution and an off the shelf solution. We led that with a payment gateway that gives us good flexibility to be able to innovate around. Our strategy here is to be a platform provider. We provide a platform to all banks through which they will be able to innovate and provide solutions to their customers. We also have APIs that we have made available and exposed to especially third-party aggregators of payments. These third-party aggregators of payments then go out and are able to innovate around our solution and can come up with brand new offerings for different audiences, maybe P2P offerings, B2B offerings, etc. The conversations we are currently having are extremely intriguing with different financial services providers but also non-traditional players who are now entering the payments space as it grows wider and wider.

One of the goals that you tried to achieve is scaling. What do you mean by that?

There is an opportunity for us to scale. We currently have moved about 200 billion KES through our system, most of it in the last year. There is an opportunity for us to move much more. This is a drop in the ocean as far as the volume of payments in Kenya today. When we talk about scaling, how do we ensure that more and more of the transactions that are taking place out there inefficiently can now be done digitally? What keeps me awake at night is how we can innovate as fast as possible to ensure that we are capturing more and more of the cash out there and bringing it into a digital ecosystem that makes it more efficient and makes it cheaper to transact.

How do you do that? Do you start field by field? Do you address the government?

The first thing we do is we look at the customer. At the end of the day, who is going to use this solution? If our opportunity in the market is to make it cash lighter, we then go down and look at the person who is going to be the end user. Why is it that their behavior is a certain way? Why are they using cash? What can we do to innovate around this to ensure that we can make their lives easier? Everything we develop here is driven by the end customer. We do a lot of research and a lot of work around customer journeys and what they actually need. How can we ensure that we are actually providing a service that works for the end user? Other than the speed and convenience, etc. why are they moving around with such large amounts of money? For a lot of the merchants, their biggest issue is that they accept cash so readily because their margins of doing business are very thin. For them to be able to embrace digital collection methods then becomes very expensive for their business. The question I then come back with to my organization is, how can we provide a solution that is cost-efficient for these merchants to be able to collect and be able to run their businesses without necessarily becoming a shareholder in their business as a form of payment? Another example is that today, the government of Kenya has a very robust, digitally run citizen portal where you are able to consume over 200 different services from the government through that one portal. For a long time, the government has not been able to put solutions on that portal that are above the mobile wallet limit. With this one integration with the government, they are now able to provide higher ticket services with the same efficiency as they do for smaller payments and the smaller services that cost less. By so doing, the government can very easily scale from 200 to maybe 500 different services they are able to provide online with the same efficiency. Before, to consume the government services off the eCitizen portal, you had to go through a number of different hoops. Traditionally, you would move money from your bank account into a mobile wallet, then from the mobile wallet into the eCitizen wallet. Today, you can actually do a transaction directly from your bank account straight into the bank account of the government and then get the service fulfilled almost immediately. The ticket size does not matter much anymore going forward. We have now ensured that the end customer, straight from whatever banking app, USSD, or other channel they have, they are able to go in and pay the government efficiently and affordably. We are actually the cheapest way to move money in Kenya today. One of the things that the banks ensured when they set up PesaLink was that we start consciously bringing down the cost of transacting in Kenya.

What are the costs and the different payment methods?

There are many different ways of doing payments in Kenya today. For the traditional cards, a percent of the transaction to the merchant goes anywhere from 1.5% if you are very lucky all the way up to 4% or 5% which is quite high. Then, there are the different mobile wallets and the various charges that they incur. What happened when PesaLink was being set up was that it was made a requirement that every single bank was going to apply to the Central Bank of Kenya for permission to run the product. They were also going to submit their tariff structure. From a competition standpoint, we cannot dictate how much is going to be charged by each of the banks. Every bank, like any other product, needed to submit their own applications for what they were going to charge as a tariff. They put in their applications, the applications were approved, and when we compared all the 30 banks and the different tariffs that they actually charged and compared that to anything else in the industry. We found that PesaLink consistently remained a cheaper product than anything else that they offered internally as a bank, including RTGS, EFT, or any other payment player offers today. Again, this was a conscious decision to ensure that we start bringing down the costs related to transacting across the industry.

What online services are you planning?

We are innovating all the time. We are currently rolling out a collection service, for example. The collection service will include an element that will allow ecommerce players to be able to get paid or to collect directly from their website without leaving their environment. It is a push kind of product where a customer is able to go into a website, make a purchase, and checkout their shopping cart without leaving the environment. This is all new innovation hat we are driving and it should be up and running within the next two or three months.

What projects would you like to start?

This year, primarily our focus is on continuously improving the customer journey within all our banks. We are also working with third-party aggregators of payments to make PesaLink available for them to innovate around. Innovation does not have a home. There is no monopoly on innovation. As many people have access to the API and are able to experiment and play around with it is as many as the number of innovations that we will get at the end of the day. One of our mandates in terms of customer journey is ensuring we have as many products out there that are responsive to the different customers that we have. The second thing we are focusing on is finding an opportunity for us to increase operational efficiency in the different banks. Using PesaLink as a back-office utility within the banks for them to be able to process bulk payments, standing orders, and that sort of thing is an area we are very excited about and we are exploring that with a large number of banks. Every bank right now has a mandate to increase operational efficiencies and to reduce the cost of doing business, especially as interest rates get tighter and as we start chasing more unified types of revenue. We have found that with a lot of banks, PesaLink is becoming integral to them fulfilling that mandate. For example, if you are doing a bulk payment of salaries and you are supposed to process on behalf of your customer, salaries are paid every 24th of the month. Traditionally, if the 24th falls on a Saturday or a Sunday, it usually goes to the next working day. But it does not have to. With an instant payment real time solution, you can actually deliver those on Sunday, even at midnight. There is nothing that stops you. We are beginning to find that there are ways of ensuring that the back end of banks work better, sleeker, and that they are able to create delight with their customers.

Project yourself three years’ time, the medium term. What is your vision? What would you like to achieve for the company?

My dream is that we move the needle as a country. That below 10% statistic is too small. The opportunity is huge. My dream is the adoption of PesaLink as a service and for any other digital player, the space is still wide open. The adoption and the value that it creates becomes self-evident. Today, the most expensive way of doing payments is still cash. More often than not, we do not value our time. If you tallied up every minute and you valued the time it takes to leave home, travel into the city, go to the bank, get in line, remove cash, go to a merchant, pay for goods, and then say for every hour of my day it actually costs me 10 shillings, we would then realize as an economy how expensive it is to function the way we currently are functioning. In three years, I hope we would have made a significant dent and shifted people’s behaviors so that they not only understand but embrace the digital forms of payments that are available to them, and there are many. My second dream is that PesaLink becomes the way that they choose to make payments digitally going forward.

Do you think you could teach the world how to do it, that you could be the leader?

In the last year, I have had 14 countries come through and sit in this boardroom to learn about how we implemented PesaLink, our journey to date, and where we are heading. I have spoken at many conferences around the world. Three weeks ago, I spoke in Amsterdam about instant payments. I have shared world stages with many first-world countries who are just starting off on this journey. I am very happy to educate anybody and everybody on the value of instant payments. Going forward, the race is who can deliver payments globally instantly. There is no reason why today, sitting here, I cannot send money to my aunt in Mali instantly. I go into my bank app, I make a transaction, and regardless of whether it is for mobile wallet or into a bank account, instantly, she gets value. That is the race right now and everybody is running. Financial institutions are scrambling to integrate APIs globally. Most of them are integrating instant payments APIs which is why we are seeing so many instances growing globally. When we launched there were only about 9 instant payments instances globally. Today, there are over 42 and about 16 others are in development. Instant payments are the future.

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