Bank customers who pay cheques from rival lenders into their accounts will be able to get the money cleared within one working day in fresh efforts to boost cash flow in the economy.
At the moment, the process can take up to three days, removing the discrimination that has for years seen banks clear internal cheques within 24 hours. The reduced clearance period follows an upgrade of the Automated Clearing House System (ACH), the platform used by banks for electronic funds transfers and cheques.
The electronic fund transfers or EFTs will clear within the banks’ hours of operations as opposed to the previous 24 hours while foreign currency-dominated cheques will clear within two days from seven days.
“Currently, local currency cheques clear on a T+1 cycle with value available to the payee one day after the cheque is presented by the paying bank to the ACH,” the Kenya Bankers Association (KBA), the industry lobby, said in a statement on Monday.
Kenyan banks in 2013 cut the clearing time for a commercial bank cheque to one day from two to reduce the costs of doing business and to fend off growing competition from mobile phone-based payment systems that operate in real-time. But this was available for cheques drawn within the same bank.
In Kenya, the usage of cheques has slowed down in the last decade, losing out to digital payment channels which are more efficient for businesses and individuals. While the value of cheques went up from Sh2.05 trillion in 2011 to Sh2.55 trillion last year, the number issued in the payments fell from 18.2 million to 15.69 million in the period, says the Central Bank of Kenya (CBK).
Meanwhile, the volume of cash transacted through mobile money agents rose nearly six times to hit Sh6.87 trillion in 2021, from Sh1.17 trillion in 2011. Bulk payments made through real-time bank transfers have also gone up by a significant margin, from Sh21.9 trillion in 2011 to Sh34.55 trillion in 2021.
Moving cash physically adds significant costs to businesses due to transport, security and other costs. Banks cut the time it takes to clear a cheque to two days in January 2012 from four days after the automation of the clearing house. In the 1990s, Kenyan businesses used to wait 14 days for cheques to be cleared.
“The new system will significantly improve clearing services for cheques, direct debits and EFTs in the country,” said KBA chief executive Habil Olaka.
“The new standard will also provide enhanced payment insights, supporting banks’ risk management initiatives and informing policy decisions towards promoting a responsive financial sector.”
The CBK says the transition is expected to improve anti-money laundering and countering financial terrorism (AML/CFT) screening and fraud monitoring, increasing the safety of the country’s national payments system.
“The CBK reiterates its commitment to facilitating the emergence of a safe, secure, innovative payments ecosystem,” the CBK stated.
In the UK, the future of cheques was in doubt a few years ago when the payments industry discussed phasing them out by 2018, but it was forced into a change of plan by MPs who said no viable alternatives for the vulnerable and elderly were in place.