Equity Bank goes it alone as regional grid project stalls
Saturday July 15 2023
The EAC Talking ATMs project was meant to lower the cost of cross-border banking transactions, boost trade, investments and cushion regional banking customers from expensive international card payments platforms as part of a broader regional financial integration plan. PHOTO | FILE
Efforts by East African states towards financial integration has suffered another setback after the failed implementation of a mega project seeking to interlink the automated teller machines (ATMs) of the region’s commercial banks.
This has prompted regional lenders such as Equity Bank to go it alone. Equity is now reaching out for partnerships with foreign fintech firms to allow access to its ATMs by other bank customers in Uganda and the Democratic Republic of Congo (DRC).
The EAC Talking ATMs project, was initially scheduled to take off in 2015, and meant to lower the cost of cross-border banking transactions, boost trade, investments and cushion regional banking customers from expensive international card payments platforms as part of a broader regional financial integration plan.
Read: EAC to set up regional central bank this year
The World Bank, which sponsored the project, said non-transparent risks and high transaction costs of moving funds across borders mean that long-term savings have not been mobilised at the regional level to support large-scale regional infrastructure.
But a Kenya government source privy to the plan told The EastAfrican that failure of the project also left in limbo the regional Retail Payments Interoperability project, which was scheduled to go live on a pilot basis in 2015.
Single currency regime
“It was never accomplished because the EAC Financial Sector Development and Regionalisation Project (FSDRP) came to an end before we accomplished certain work streams, like that of the interoperability of card switches,” said the official.
The interoperability of the EAC payments card switches and cross-border mobile banking and payments were part of the eight-year (2011-2019) World Bank-funded EAC FSDRP seeking to promote the integration of the region’s financial sector ahead of the adoption of the single currency regime whose 2024 timelines have since been revised to 2031.
The EAC FSDRP was funded through a $26.5 million grant.
The project was designed to connect Kenya’s Kenswitch to Tanzania’s Umoja Switch, Uganda’s Intel-Switch and Rwanda’s R-Switch to allow different banks across the region to identify payments cards of other banks in the region.
Read: EAC to wait longer for monetary union
Interoperability plan
The card switches were to be hooked to the real time gross settlement (RTGS) systems of their respective central banks.
Our source said the EAC Secretariat is negotiating with the World Bank for a bigger project to take over the outstanding work streams but it has not been determined whether the interoperability of card switches will be one of them, as the agreement is yet to be concluded.
International card payment platforms are expensive, as each require multiple intermediaries to complete a transaction in which each (intermediary) adds its own fee.
Visa card transactions consist of an interchange fee and an assessment fee, which varies according to the card network providers, such as American Express, MasterCard, and Visa.
By contrast, bank payments through conventional ATM cards are simply direct transfers between two accounts, which involve fewer steps along the way, thereby reducing the cost of processing.
The EAC regional Retail Payments Interoperability plan, which was being implemented by the EAC Secretariat in collaboration with regional central banks through the Monetary Affairs Committee (Mac), sought to reduce the cost of ATM transactions across the region by about 50 percent.
Read: Why EA’s financial sector linkage could be stillborn
The proposal for its implementation followed a study by consultancy firm Ernst & Young (Uganda) in 2014.
Customs Union and Common market
The disclosures over the failed implementation of the payments card switch interoperability project come as hopes of implementing a single currency regime managed by an East African Central Bank dim after member states failed to put up enabling institutions and to attain key macro convergence conditions relating to forex reserves, inflation, budget deficit and public debt.
Financial integration forms a critical component of East African Monetary Union Protocol, which was signed by the regional heads of state in Kampala in 2013, outlining a 10-year roadmap for implementing the third pillar of regional integration process after the Customs Union and the Common market, The EastAfrican has learnt.