A lawsuit filed by bitcoin payments startup BitPesa and its partner against mobile money giant Safaricom was heard in the Kenyan High Court on Tuesday.
The startup says Safaricom "intimidated" its gateway partner, Lipisha, forcing it to suspend its services without prior notice, according to Kenyan newspaper the Daily Nation. The stoppage came into effect on 12th November.
As a result, BitPesa and Lipisha are facing significant challenges to maintaining their business. A lawyer for the two firms told the Daily Nation that BitPesa is "at risk of collapse" because it's now unable to conduct its business.
The two firms sued Safaricom for infringing on their rights to acquire and own property, fair administration and economic interests.
BitPesa uses Lipisha as a payment gateway to enable transfers and conversions of bitcoin into other currencies, including Kenyan shillings on Safaricom's mobile money platform M-Pesa.
Safaricom argument at hearing
During the hearing on Tuesday, Safaricom argued that the suspension of service to Lipisha was justified because of anti-money laundering rules.
The mobile money operator claimed that Bitpesa had failed to obtain authorisation for bitcoin transfers from Kenya's central bank. As a result, Bitpesa's transactions through Lipisha and its account at Safaricom contravened AML rules.
But a lawyer for the two firms said Safaricom had misunderstood the central bank's requirements.
"[The central bank] told BitPesa that bitcoins are not regulated in Kenya but Safaricom insists that it produces a licence to that effect," the firms' lawyer, Kiragu Kimani, said, according to the Daily Nation.
The court will rule on the case on 14th December, but the service suspension will remain in place in the meantime.
Elizabeth Rossiello, CEO and co-founder of BitPesa, said in a statement to CoinDesk:
"I do not wish to comment much on a matter in court. BitPesa has been wronged, which is why we have referred the matter to court. I am deeply disappointed that the media continues to publish incorrect information that diverts from the evidence submitted to the court, but we will let the court determine the matter. We remain confident that even a small company like BitPesa will gain a fair trial and look forward to the court's decision."
Rossiello did not immediately respond when asked to elaborate on what media reports with "incorrect information" she was referring to. Neither Kimani nor Safaricom responded to a request for comment from CoinDesk.
A significant case
A ruling favourable to BitPesa and Lipisha could trigger a spike in interest from international digital currency firms, said Michael Kimani, an independent payments analyst in Kenya.
"This is a significant case. If the ruling seems favourable, you could see other businesses coming here. You would be able to do bitcoin to Airtel Money, to Orange Money. It's M-Pesa that seems to be the contentious one," he said.
M-Pesa is the dominant mobile money player in Kenya, accounting for two-thirds of the market, according to the Competition Authority of Kenya. Its competitors are mobile money platforms from carriers Airtel and Orange.
Mobile money is a key channel in Kenya's payment landscape. Mobile money transaction volume was more than double that of payment cards in Kenya in 2013, according to the Kenyan central bank.
BitPesa – which raised $1.1 million from Pantera Capital and others in February – offers bitcoin trading and money transfer services in four African countries.
Lipisha is a payments gateway launched in 2012 with funding from Growth Africa, Village Capital and Met Fund.
Featured image: Flickr / Whiteafrican