East Africa’s banking customers will have to wait longer to gain access to cheaper ATM withdrawal charges as states dither on reviewing financial laws to enable an integrated regional banking switch.
The switch connecting Kenya, Uganda, Rwanda and Tanzania banking systems, which was expected to go live in 2015, has been held back due to failure by the Finance ministers to agree on how to review banking legislations in their respective countries.
A source close to the project said all the logistical and technical aspects have been concluded but there are still no regional laws and policies to operationalise the system.
“In principle, the EAC Finance ministers have agreed that all the region’s banking switches should communicate with each other but this requires changing policies and the legal framework which is not easy. All these are still under discussion by the ministers,” said the source.
“There is agreement at the national level. The hitch is at the regional level where regulations have to be reviewed, which takes time.”
It is argued that the fee charged on automated teller machine withdrawals from different banks across region will drop from $2.5 to about $0.8 per transaction when the interoperability of card switches project goes live in Kenya, Uganda, Rwanda and Tanzania.
The countries have already linked their card switches to their RTGS systems. Burundi is expected to be part of the initiative once it establishes a national payment switch.
Under this arrangement, regional Central Banks will take over the responsibility of determining and setting foreign exchange conversion rates, thus ensuring that customers face minimum foreign exchange losses associated with cross-border payments.
Real time transfers
For instance, a Ugandan with a DFCU bank ATM card travelling to Kenya will be able to withdraw money from Equity Bank of Kenya at $0.8 per transaction and at an exchange rate set by the Central Bank of Kenya.
The initial phase of this project is expected to cover ATMs before expanding to other business payment solutions such as points-of-sale and interbank transfers.
The interoperability of the card switches is being implemented by the EAC Secretariat in collaboration with the regional Central Banks under the umbrella of the EAC Monetary Affairs Committee.
Its implementation is based on recommendations of a 2014 study by Ernst &Young (Uganda) which was financed by the World Bank to the tune of $14 million.
The project was launched in May 2014 by the governors of the region’s central banks, to ensure real time gross settlement of transactions with payments carried out using any currency of the EAC.
Cross-border payments in East Africa comprise a significant and growing part of regional gross domestic product. Agriculture related cross-border transactions alone surpass 60 million transactions and $900 million exchanged in the region annually.
The initiative between the four switches seeks to enhance financial inclusion in the EAC.
The initiative is expected to bring financial benefits and impact the financial sector across the region by promoting cross-border payments using debit/credit cards within the EAC banking sector.