Payments company BitPesa, is suing Safaricom, the telecom company which operates M-Pesa. Also suing is Lipisha, the payment company that gateways BitPesa and MPesa.
Safaricom had stopped Lipisha processing MPesa transactions, freezing monies pertaining to Lipisha transactions in its accounts – apparently the payment handler was notified by text message. Safaricom later reinstated Lipisha’s access, but only did so on the condition that Lipisha terminate its relationship with BitPesa, giving Lipisha only one hour to decide. Lipisha and BitPesa claim Safaricom has no legal right to do so and is infringing upon “rights to acquire and own property, fair administration and economic interests”.
Safaricom says BitPesa does not meet its anti-money laundering requirements, invoking the need for a licence to be able to connect to its customers. Under the backings of Lipisha, BitPesa converted its customers’ bitcoins into Kenyan shillings and sent them to recipients’ MPesa. It is unclear exactly how, or by whom, AML rules will be enforced in this case. In the meantime, transactions between the platforms remain suspended.
Bitpesa said “BitPesa has implemented AML/KYC policies that comply with Kenyan legal and regulatory requirements. We have freely submitted them to the Central Bank of Kenya, as well as regulators in other jurisdictions in which we operate. We hold ourselves to the highest standards when it comes to AML/KYC compliance.
“As we have detailed in our court filings, the Central Bank of Kenya has informed us that we fall outside its money transmission and money remittance regulations. Safaricom cannot demand that BitPesa produce a licence from the Central Bank that the Central Bank itself considers inapplicable to BitPesa’s business.”
Bitcoin and M-Pesa are both components of a payments revolution that is happening right now and which will be remembered as one of the great technology success stories of the 21st century.
Key in this case will be the regulatory trio of the Central Bank of Kenya (CBK), the Competition Authority of Kenya and the Communications Authority of Kenya, which now work closely, end-to-end on situations like this.
Kenya’s central bank is known to be pro-innovation. CBK stuck its neck out in the first place back when MPesa was originally tested, bravely allowing it to continue without a banking licence in the face of stiff commercial and political opposition.
These days Safaricom does its best to protect its supremacy in the Kenyan market. However, its exclusivity was destroyed in June 2014 when the competition authority ordered it to open up its network of 90,000 plus agents and allow Airtel, yuMobile and Orange users to withdraw and deposit cash freely at MPesa agent shops.
Safaricom recently objected to its one-time partner Equity Bank rolling out a “thin SIM” which can be used for financial transactions, claiming the new technology could compromise the security of the MPesa system, exposing its subscribers to a risk of fraud. Interestingly, Safaricom lobbied against Equity Bank to prevent it operating like a telco – a reversal of the past where banks were lobbying to prevent MPesa doing financial services.
“Safaricom MPesa has been for the last two years under a lot of pressure from the Competition Authority of Kenya and other public authorities due to its massive dominant position in the mobile money market (around 78% share).
“You have had competition actions by Airtel against them, you have complaints against them on the tariff and prices and transparency from consumer associations and so on. It is very likely any time soon to have a major investigation launched, led by the telecom regulator together with the central bank and the competition authority on the pricing and transparency on a number of things, including USSB channel access.
“The Kenyan central bank has also been supportive of the BitPesa project. Normally in developing countries things with bitcoins are seen with extreme caution. Very stupidly, because I personally believe that virtual currencies could have a major role in sustainability developments.” said digital payments and communications expert Jean-Stéphane Gourévitch, CEO Mobile Convergence Ecosystems.