NAIROBI – East African Community partner states are inching closer to a monetary union with the launch of a standard payment systems next month. The new model, which replicates the European Union’s Single Euro Payments Area, will see all electronic payments within the bloc considered domestic.
Central Bank of Kenya (CBK) sources, who have been meeting at the Kenya School of Monetary Studies to finalise on the development, say a common payment systems will eventually lead to the creation of one central bank and one currency for the region.
“Fragmented payment systems are a major obstacle to financial integration at the regional and international levels. The building of common infrastructures and payment systems certainly is one of the conditions for efficient allocation of financial flows among East African countries,” they said.
The new payment system is expected to do away with the abnormally high transaction costs arising from the multiplicity of banking regimes and foreign exchange costs as payments and collections are the lifelines of trade and banks’ cash management business.
Statistics show that cash still dominates the global payments market with over 60 per cent of payments in East Africa done through it. Critics, however, say that a “fully” consolidated payment infrastructure that could take longer than expected, arguing that the selection of a designated central bank to facilitate the settlement process could be an uphill task for the East African Community.
The coming into play of a harmonised payments systems means that consumers can make all the intra-EAC payments from one bank account. For example, those working in Uganda will no longer need to hold one account at Rwanda or Tanzania and another in the country they work in. They will be able to complete all of their electronic transactions from their home account.
To the business community, the standardisation of payment services across the EAC zone will result in more reliable and efficient payment transfer processes and also allow businesses to reduce the number of bank accounts they hold and consolidate payments and liquidity management.
“Payment transfers will be simplified as all incoming and outgoing payments can use the same format,” said Isaac Awuondo, the Managing Director of Commercial Bank of Africa.