CBK to Roll Out Compensation Rules for E-Money and Digital Wallet Fraud

The Central Bank of Kenya (CBK) has unveiled a plan to establish formal compensation rules for e-money and digital wallet fraud, marking a new chapter in the country’s digital finance regulation. The move is intended to close existing gaps in consumer protection, particularly as mobile wallets and digital financial services (DFS) become increasingly central to Kenya’s economy.

Outlined in the Kenya National Financial Inclusion Strategy 2025–2028, the framework will be developed in collaboration with other regulators and the Competition Authority of Kenya (CAK). The CBK has committed to implementing the new rules by the end of 2026.

The central bank says the framework will focus on building provider capacity, introducing digital complaint systems, and boosting transparency in pricing. It will also track clear performance indicators, such as a decline in unresolved complaints and increased public awareness of financial rights.

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Why Compensation Rules Are Needed

Rising digital adoption, rising fraud

Kenya has become a global leader in mobile money innovation, with penetration rates exceeding 90%. Platforms like M-Pesa and numerous digital wallets have transformed how Kenyans save, transfer, and transact. Yet, as adoption has grown, so have reports of fraud.

A FinAccess Report published in 2024 revealed that 9.8% of respondents reported losing money through mobile money fraud, a higher share than in other financial products. Internal fraud in Saccos and pension schemes was also worryingly high, affecting 75.1% and 66.1% of respondents respectively.

Consumer experiences of fraud

Earlier, the 2021 Digital Credit Market Inquiry conducted by CAK in partnership with Innovations for Poverty Action (IPA) painted a grim picture of consumer exposure:

• 82% of respondents said they had received scam calls or messages requesting money or personal data.
  
• 77% of scams involved requests to “reverse an erroneous payment,” a tactic designed to trick consumers into sending money.
  
• Other scams sought PINs or passwords (21%), personal information (19%), or account details (13%).
  
• Some scammers falsely claimed to be employees of financial service providers.
  

The report noted that fraud not only leads to direct losses but also undermines trust in the financial system.

Recent fraud statistics

Fraud cases remain a significant problem. As of mid-2025, Kenyan authorities reported over 146 incidents of mobile banking fraud and 106 incidents of online banking fraud. Identity theft and card fraud also featured heavily in these reports. Without clear compensation mechanisms, victims are often left bearing losses.

What the Framework Will Entail

The CBK has outlined several key elements of the forthcoming compensation framework:

1. Capacity Building: Providers will be required to strengthen fraud detection systems, improve identity verification, and train staff to handle consumer complaints effectively.
   
2. Digital Complaint Systems: Platforms must deploy accessible systems to allow consumers to file, track, and resolve complaints seamlessly.
   
3. Transparency in Pricing and Terms: All fees, charges, and compensation criteria must be clearly disclosed to users, reducing hidden costs and ensuring clarity in recourse processes.
   
4. Performance Indicators: The CBK will measure success based on indicators such as a reduction in unresolved complaints, faster case resolution, and higher consumer awareness of rights.
   
5. Collaboration Across Regulators: The framework will be enforced in partnership with CAK and potentially other regulators to avoid overlap and ensure comprehensive oversight.
   

The CBK has emphasized that the framework is not only about refunds but also about preventing fraud in the first place. Service providers will be incentivized to improve risk management, knowing that lapses could trigger compensation liabilities.

Alignment With Broader Financial Strategies

National Payments Strategy

The initiative builds on Kenya’s National Payments Strategy (2022–2025), which set out to ensure safety, efficiency, and inclusivity in payment systems. That strategy already called for greater consumer protection, and the compensation rules are the next logical step in implementation.

Digital credit oversight

The CBK has also taken a tough stance on digital credit providers, with regulations introduced in 2022 mandating licensing, transparency, and accountability. The compensation rules extend similar consumer protection principles into the e-money and digital wallet space.

Broader financial inclusion agenda

The rules fall under the Kenya National Financial Inclusion Strategy 2025–2028, which seeks to enhance access, usage, and quality of financial services. By creating recourse mechanisms, the CBK is ensuring that financial inclusion is not only about access but also about safe and fair access.

Benefits and Opportunities

For consumers

The rules promise stronger protection for ordinary Kenyans who rely on mobile wallets daily. With clear procedures for redress, victims of fraud will no longer feel abandoned. Greater confidence could also encourage adoption of more advanced financial products, from savings to insurance, via digital platforms.

For providers

While compliance may be costly, providers could benefit from increased consumer trust. Platforms that demonstrate strong fraud prevention and quick compensation could build reputational advantages, attracting more users in a competitive market.

For regulators

The framework offers CBK and CAK clearer tools to enforce accountability, standardize market practices, and collect data on fraud trends. This will help shape better long-term policies.

Potential Risks and Challenges

1. Cost of Compliance: Smaller fintech firms may struggle to implement robust fraud monitoring and compensation systems. Some may even exit the market, reducing competition.
   
2. Moral Hazard: If consumers assume they will always be compensated, they may become careless with security measures, increasing fraud risk.
   
3. Dispute Resolution Complexity: Determining liability in fraud cases is often difficult—was the user negligent, or did the provider fail to secure the system? Clear rules will be needed to avoid prolonged disputes.
   
4. Implementation Delays: With multiple regulators and stakeholders involved, rolling out the rules by 2026 could face challenges.
   
5. Boundaries of Coverage: The framework must clarify what types of fraud are covered. For instance, social engineering scams versus system breaches may require different approaches.
   

Regional and Global Context

Kenya’s initiative places it among countries pioneering consumer redress mechanisms in digital finance.

• In India, regulators have established rules requiring banks and wallet providers to compensate customers for unauthorized electronic transactions under specific conditions.
  
• In Nigeria, the central bank has issued guidelines on consumer protection in e-payments, though implementation remains uneven.
  
• South Africa has also been tightening rules around fraud liability in its payments ecosystem.
  

Kenya’s approach could therefore serve as a model for Africa, balancing innovation with strong consumer protection.

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Reactions From Stakeholders

Consumer advocates

Consumer groups have welcomed the initiative, calling it overdue. Many argue that compensation rules will restore fairness to a system where ordinary users have historically carried the burden of fraud losses.

Industry players

Fintech firms and banks are cautiously supportive but concerned about costs. The Kenya Bankers Association has previously warned that over-regulation could stifle innovation. Smaller fintechs, in particular, fear that compliance costs could erode already thin margins.

Regulators

The CBK has positioned the rules as part of a market-strengthening exercise. According to Governor Kamau Thugge, protecting consumers is essential for sustaining trust in digital finance. The involvement of CAK also signals a recognition that fraud compensation has competition implications—rules must not unfairly burden some providers over others.

What Happens Next

Between now and 2026, several milestones are expected:

• Draft Rules: CBK will likely publish draft rules for stakeholder consultation.
  
• Stakeholder Engagement: Input from banks, fintechs, telecoms, and consumer bodies will shape the final design.
  
• System Upgrades: Providers will begin upgrading complaint handling systems and fraud monitoring tools.
  
• Public Awareness Campaigns: CBK is expected to run consumer awareness campaigns to educate Kenyans about their rights under the new framework.
  
• Monitoring Metrics: Once rolled out, CBK will track KPIs such as fraud incidence, complaint resolution rates, and consumer satisfaction.
  

Broader Implications

For Financial Inclusion

By guaranteeing recourse, the framework could draw more unbanked populations into the digital economy. Many currently avoid digital wallets due to fear of fraud. Clear rules may change that perception.

For the Digital Economy

As Kenya positions itself as a digital hub, consumer protection is critical. Strong rules not only safeguard users but also make Kenya more attractive to investors, startups, and multinational players seeking a stable, well-regulated environment.

For Africa’s Fintech Future

Kenya has long been seen as a leader in mobile money innovation. If successfully implemented, these compensation rules could serve as a regional benchmark, influencing policy across East Africa and beyond.

Conclusion

The CBK’s decision to roll out compensation rules for e-money and digital wallet fraud reflects a maturing financial ecosystem. It signals that Kenya is moving from an innovation-first era into a consumer protection era, where growth must be matched with accountability and fairness.

For consumers, it offers long-awaited hope of justice. For providers, it sets higher standards. And for Kenya, it reinforces its role as a trailblazer in digital finance regulation.

If executed effectively, by 2026 Kenya could have one of the most advanced frameworks in Africa for tackling fraud in digital wallets—ensuring that the promise of financial inclusion is not overshadowed by fear of fraud.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

2nd October, 2025