New dawn as cheque truncation takes effect

By Patrick Githinji and James Anyanzwa

Tomorrow marks the dawn of a new era as the banking industry changes how cheques are processed and cleared.

From Wednesday, Kenyan banks will electronically process and clear cheques, removing the burden of physically ferrying the documents to the clearinghouse from the consumer. This is thanks to the Cheque Truncation project, which seeks to reduce costs and improve efficiency of the national payments system.

The Kenya Bankers Association (KBA) has promised a smooth transition process, which will see both the old cheques, and the new truncation compliant cheques cleared concurrently on a usual T+3 platform, until the former is completely phased out.

"Going forward, old cheques will still go through the system and they will take three days to clear as before. The volumes of the old cheques will start clearing out once the new cheques pick up. But for now both are accepted," Mr Habil Olaka, the association’s chief executive told The Standard.

The initiative is collaboration between commercial banks and the Central Bank of Kenya (CBK), and forms part of reforms being implemented in the national payment system.

"Its implementation will generate some additional benefits in the fraud control area. For instance, the elimination of physical movement of cheques shall eliminate the opportunities for cheque substitution in addition to the new system not allowing any alterations on the face of cheque which created room for fraudulent alterations," said Olaka.

With the new system, commercial banks are expected to switch to a single national cheque clearing cycle of three days for both upcountry and Nairobi cheques starting from Wednesday.

Clearing period

Six months later, the cheque clearing cycle in the whole nation will reduce to two days. Currently, the longest cheque clearing period for upcountry cheques is about ten days (T+10)

The five-year cheque truncation project is under the stewardship of PriceWaterhouseCoopers (PWC), with commercial banks financing the cost of the investment to the tune of Sh650 million.

KBA has introduced new cheques whose design complies with the security and operational requirements of the new system.

The deadline for phasing out the old cheques was set for Tuesday, May 31, but KBA says they can still be transacted until June 13.

Commercial banks are rushing to beat the deadline of issuing new chequebooks to customers. Banks are required to completely replace old cheques with new cheque truncation system compliant cheques in order to pave way for an automated clearinghouse.

Consolidated Bank, Ecobank, Equity, Standard Chartered and NIC banks are some of the lenders who are already issuing clients with the new 7 by 4 inch standardised cheque books whose clearance will be done online starting on Wednesday.

Consolidated Bank, Chief Executive Officer, David Wachira, last week told Journalists that 70 per cent of the bank customers had returned their old chequebooks.

"We were at 70 per cent by last week and we are hoping that by next week we shall hit 80 per cent," Wachira said.

On Monday, Ecobank put out a paid advert reminding clients that the new look cheque books will come into effect on June 1, in line with the new guidelines set by the banks umbrella body.

The new system is expected to improve efficiency and streamline cheque-clearing process, reduce costs associated with handling of physical cheques and curb the increasing cases of cheque fraud.

"Customers who are ordering new cheque books are receiving new cheque truncation ready books. We are requesting customers to return old cheque books and start using the new ones," said James Mailu, central processing centre manager at NIC Bank.

Equity Bank lauded the process, saying it is going on well in the urban centres compared to rural areas.

"We have trained our staff on security features to look out for in the new cheques and also how to explain to customers the benefits of the new leafs," said James Mwangi, the CEO of Equity Bank.

However, some banks have remained non-committal on whether they would revise downwards the cheque-processing fees in tandem with the expected reduction in costs.

It also remains unclear who will bear the cost of issuing new cheque books.

Previously, banks issued cheques of different sizes to different groups of customers, and the retail clients who are commonly issued with small pocket size cheques might be inconvenienced with the new size.

"We have not had responses yet from the customers, but we don’t expect them to have an issue as the benefits greatly outweigh the inconvenience," said Olaka.

However, to limit forgery accredited printers have been given printing tenders of the cheques. The five security printers include De La Rue, Punchline, System Media Technologies, Kalzmart and Taws.