Banks bungle new cheque clearing system

By KENNETH KWAMA and JAMES ANYANZWA

Questions are emerging over the efficiency of the much touted cheque truncation system.

It had been expected that with the new system in place, bank customers countywide would enjoy shorter cheque clearing cycles — meaning they will access their funds much faster.

While a few customers have been lucky enough with their cheques clearing in two days, expectations for a majority have turned into agonising wait as most of the customers we talked to say that they have to wait more than two days for their cheques to clear.

Fransisca Muinde, who operates a business account with a multinational bank, says she has had to wait the three mandatory days for local cheques to clear.

“I use the new generation cheques and we were told they would take two days to clear, but this is not the case. There is a time it took more than one week to clear for an upcountry cheque that I was given by one of my customers,” says Muinde.

Close to a year after the system went live, it is emerging that it is business as usual — commercial banks are taking more than the stipulated period of three days to process and clear cheques for payments.

Banking customers who spoke to Business Weekly expressed dissatisfaction over the extended cheque-clearing period with some opting for ‘cheque for money services’ at a fee.

 

mixed fortunes

Mr Maurice Otieno, who banks with Co-operative Bank in Kisumu, says he has had mixed fortunes with the new system.

“Ordinarily my cheques take an average of four days to clear, but there is a time that I banked a cheque drawn from my bank (Co-operative) and it cleared the following day,” says Otieno.

Contrary to the old system where cheques would be moved physically from the banks where they are presented to the clearing house, the Cheque Truncation System (CTS) employs a data and image-capturing application where https://cdn.standardmedia.co.ke/images of the cheques are captured through a scanner and submitted to the clearing house electronically.

Cheque truncation is a process where physical cheques presented for payment in a bank are converted to electronic form and the image is then transmitted electronically to the clearing house for processing and eventual payment by the paying bank.

Mr Paul Sesi, head of operations at Chase Bank, however, says that the system has been successful, save for a few hiccups.

“It’s actually not possible for a cheque to clear beyond two days because the system used by Central Bank for clearing does not allow that,” says Sesi.

According to Sesi, most of the hiccups being witnessed in the implementation of the new system is due to the fact that most customers do not understand how the CTS system works.

“There are situations where people were issued with post-dated cheques and they still deposit them. If you accept a cheque that is not CTS compliant, it might take 21 days or even more in order to clear,” he says.

Sesi explains that customers should not count the day that a cheque is deposited. The cheques are usually sent to the clearing house on the second day and customers are expected to get value on the third day.

It is projected that for CTS to work out successfully, about 96 per cent of cheques under circulation in the banking circles should be the new generation cheques that banks are currently being encouraged to disburse.

A director with one of the local banks who requested not to be named because of the sensitivity of the matter told Business Weekly that contrary to contention by the Kenya Bankers Association (KBA) that the system is working out well, some banks are not ready for the new technology and are yet to fully install the necessary equipment to facilitate the new system, especially in upcountry branches.

 

POOR NETWORK

“The new system employs a sophisticated way of image capture and transmission and the truth is that most upcountry branches are not sufficiently networked to operate these systems. The problem has been made worse by interruptions to communication between banks,” says the director.

But Sesi says the CTS system has been successful and because of this, bankers are now working on a project to migrate to an even better system where cheques will clear within one working day.

“If the project works out, customers will be able to get cash just one day after banking their cheques, says Sesi.

KBA contracted mobile provider, Safaricom to provide electronic linkages. The linkages are encrypted at different levels to avoid tampering.

But even as KBA acknowledged enquiries over the matter, the industry’s umbrella body allayed fears over the working of the cheque clearing system, which went live on August 15, last year.

“No bank should be taking five days to clear cheques. It is good to reach a common understanding on what ‘T+2 clearing days’ means,” said Habil Olaka (pictured),  chief executive, KBA.

“I do not expect banks to go beyond these timelines (T+2), because the bank on which the cheque is drawn has two days to communicate the fate of the cheque to the paying bank and accounts of the customer automatically credited,” he said.

The automation of the clearing house was expected to reduce the costs of doing business among the commercial banks and improve efficiency of the national payments system.

Operationalisation of the new cheque clearing method was expected to benefit customers by substantially reducing the time taken to clear cheques.

As a result of the adoption of the new system, both upcountry and local cheques moved on to a single clearing zone of three days, but this has only been on paper as customers clamour for answers on what could have disrupted the once promising project believed would change the face of banking in Kenya.

The longest cheque-clearing period for upcountry cheques had been 10 days (T+10) before the implementation of CTS.

The system is meant to provide secure, faster, efficient and cost effective mechanism of clearing bank cheques.

Banks are required to completely replace old cheques with new system-compliant cheques in order to pave way for an automated clearinghouse.

 

low compliance

The cheque Truncation System (CTS) was initially scheduled to go live in June last year but pushed forward to August 15, following low compliance rate with the electronically designed cheques.

The low compliance rate was attributed to printing constraints in the country thereby making it difficult for commercial banks to meet customers demand for the new generation chequebooks.