Eight months after its launch, the East African Payments System (EAPS) has registered modest success, lowering the cost of money transfer and elevating the East African Community to the league of competitive regions to send cash across borders.
The EAPS enables traders to either make or receive cross-border payments seamlessly in real time and in their respective local currency.
The platform, launched in November 2013, is supported by Real Time Gross Settlement systems (RTGS) operated by Bank of Uganda (BoU), Central Bank of Kenya(CBK) and Bank of Tanzania (BoT) and was launched in November 2013. The EAPS was intended to slash costs and time spent on execution of money transfers within the region’s banking sector and in turn, boost trade and financial flows considered critical for economic growth.
Chief economist for BoT, Alli Liyau said that under the system they charge a flat rate of Tsh10,000 ($6.25) to transfer bulk funds within the three countries.
“This system offers more effective funds transfer operations because of shorter turnaround times compared with ordinary electronic funds transfers that rely on foreign processing locations. However, transactions registered on this platform are still relatively few and dominated by payments for goods and services procured in the region,” said Sam Ntulume, executive director at NIC Bank Uganda, a subsidiary of NIC Bank of Kenya.
A report by the Overseas Development Institute had shown; that before the EAPS, it used to cost three times more to transfer money within the EAC than to send a similar amount from Europe into the region.
The report indicates that to send $200 from one country to another within the EAC used to cost up to $50; whereas sending the same amount from the UK into the region costs $15 while the global average cost is $8. Most of the cost of sending money is attributed to conversion of currencies.
The EAPS supports all currencies and has cross-border functionality, simplifying transactions and reducing the cash that is currently lost by senders in the form of commissions and other charges.
“Previously you needed to change Kenya shillings into dollars then send the money. The recipient on the other side received the dollars and changed it into local currency. These are the costs EAPS now circumvents,” said Prof Njuguna Ndung’u, Governor of the Central Bank of Kenya.
Service fees charged on the platform amount to around Ush10,000 ($3.8) per transaction executed between Uganda, Kenya and Tanzania compared with telegraphic transfers that cost between Ush15,000 ($5.7), and Ush20,000 ($7.6) per transaction.
Turnaround times for EAPS transactions are estimated at less than an hour while telegraphic transfers have a settlement time of two days, according to banking industry sources.
Preliminary data from BoU shows total transaction volumes recorded on the system between November 2013 and June 2014 stood at 1,200 while total transaction value grossed Ush474.4 billion ($181 million), with transactions in Kenya shillings accounting for more than 50 per cent of all transactions.
Forex transactions driven by infrastructure projects that commenced last year have dominated large transactions recorded on the platform, followed by welfare items like school fees and medical bills.
However, not all banks have embraced the system, with some favouring more established global channels like Society for Worldwide Interbank Financial Telecommunication (Swift).
“Big banks prefer Swift which covers many more countries and larger volumes of transactions in short intervals. For instance, we have recorded only two transactions on the EAPS platform since the beginning of this year in spite of its advantages,” noted a senior executive at Barclays Bank Uganda.
There are plans to incorporate Burundi into the system. Rwanda already joined last week. It is expected that once the two join the EAPS, the business community will save the costs incurred in cross-border payment for the EAC’s $5.5 billion intra-regional trade as of 2012.
A system similar to the EAPS (the Regional Payment and Settlement System, which started in October 2012 for instance, could have saved Comesa $600 million in costs of cross-border payment for its intra-regional trade of $17.4 billion in 2010 alone.
Additional reporting by Benard Busuulwa.