Joseph Bonyo
11 July 2009
Nairobi — A single payment zone for East Africa could be in place before the end of the year.
Ongoing discussions between commercial banks and regulators to flesh out the details are said to be at an advanced stage.
The initiative for the regional financial infrastructure involves the creation of a zone in which electronic payments are considered domestic, and where a difference between national and cross-border payments does not exist.
This means that commercial banks in the five countries forming the federation are able to harmonise their payment systems.
The platform would enable customers to make cashless payments to anyone located anywhere in the region using only a single bank account and a single set of payment instruments.
In an interview with the Sunday Nation, Commercial Bank of Africa managing director, Isaac Awuondo, said that so far the plan was on course.
"We are confident that we will achieve this before the end of this year. We are engaged in talks with the various regulators and are upbeat about the whole idea," said Mr Awuondo.
The project aims to improve the efficiency of cross border payments and turn the fragmented national markets into a single domestic one. According to Mr Awuondo, it is modelled along the Single European Payment Area (SEPA) that came into force last year.
"There has been a marked reduction in the costs of doing business in the Euro zone due to SEPA and we are looking at reaping similar benefits," he said.
Reduce cost
The project includes the development of common financial instruments, standards, procedures, and infrastructure to enable economies of scale. This should in turn reduce the overall cost to the East African economy of moving capital around the region.
"Currently we have to use the swift code for payments even to our neighbours in Tanzania or Uganda. This has remained very costly to both the banks and customers," said Mr Awuondo.
The plan would also see a designate bank in the region bear the platform to facilitate the ease of payment.
However, currency challenges will need to be addressed before the solution can seamlessly take off. As opposed to the European Union, the region is yet to develop a single currency embraced by all member states.
As things stands now, the Kenyan shilling is predominant in both trade and value.
The setting up of an IT integrated platform for the area will also require substantial investments from the region.
However, the CBA boss contends that the ultimate cost benefit of the project will be immense.
The introduction of a single payment platform is expected to increase the intensity of competition among lenders and corporates for customers across borders.
It also provides business opportunities for a range of other organisations-- including payment processors-- to help banks reduce costs and develop new payment services.
For consumers and organisations, this could mean cheaper, more efficient and faster payment transfer when moving money from say, either Kenya to Uganda or Tanzania to Burundi.
The idea, analysts might also be quick to point out, is necessitated by banks going regional in their operations.
Local banks, Kenya Commercial Bank and Equity have already moved to neighbouring countries as they expand their territories.
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