The Kenya Bankers Association (KBA) today announced new cheque processing timelines, which will result in a one day reduction in the time it takes for banks to process interbank cheques. The move will benefit bank customers by speeding up their cheque payment transactions, ultimately enhancing the flow of funds in the economy. Banks will migrate to the new clearing cycle from 19th August 2013.
Making the announcement, KBA Chairman Mr. Jeremy Awori noted that the new clearing cycle was a major milestone for the industry.
“The shorter cheque clearing cycle will enable customers to know the fate of their cheques faster, and funds will be availed one day earlier than in the previous cycle. We are excited about this development that will benefit bank customers by speeding up their cheque payment transactions, ultimately enhancing the flow of funds in the economy,” he said.
The new clearing cycle means that the “Paying Bank” has one business day to determine the fate of a cheque that they receive from the “Presenting Bank” via the Automated Clearing House, which is owned and operated by the Kenya Bankers Association. Previously the old clearing cycle gave the banks two business days to clear the cheques via the Automated Clearing House. On this cycle (also known as T+2), the overall time it would take from cheque deposit to funds available would be approximately four business days. With the new timelines (known as T+1) that take effect on 19th August, the overall time it would take from cheque deposit to funds available would be reduced to approximately two to three business days.
Mr. Awori also thanked stakeholders for collaborating with the KBA to improve the standards and efficiency of the banking industry. “Over the years, KBA has been able to dramatically reduce the cheque clearing period from a high of 21 days in the 1990’s. The initiative is the result of collaboration between commercial banks and the Central Bank of Kenya and forms part of reforms being implemented in the National Payment System,” he added. Mr. Awori appreciated the partnership between the regulator and the industry association, saying “The positive development we have witnessed through the Kenyan banking industry is a result of the collaboration between KBA and Central Bank, not forgetting the individual banks that make up the KBA membership.”
KBA and CBK initiated the cheque truncation project that not only saw the introduction of a new, more secure cheque format, but also introduced the automation of the cheque clearing process. Contrary to the physical exchange of cheques by banks up until 1997, banks today ‘exchange’ cheques electronically using the image of the cheque and associated information. The move has contributed majorly to significant reduction in cheque-related fraud as well as increase the efficiency and accuracy in making cheque payments. The new cheque processing timelines affect all cheques denominated in Kenyan Shillings drawn on banks in Kenya and exchanged at the Automated Clearing House. There will be no changes in the clearing process for foreign cheques drawn on banks out of Kenya. Additionally, there will be no cost passed to the customers under the new clearing cycle.
The Cheque Truncation Process
Cheque Truncation is the process of clearing cheques between banks using the image of the cheque and associated electronic information. This process takes place at the Automated Clearing House which is owned by the Kenya Bankers Association (KBA) and regulated by the Central Bank of Kenya (CBK). Through the use of technology, the process is much faster and more efficient, leading to savings in time (from a high of 21 days in the 1990’s). As a result, customers can now enjoy the benefit of this reduction in time.
Why Does It Take Longer Than 2 Days To Access The Funds?
The cycle starts when a bank receives a cheque. If the cheque is from another bank, the Presenting Bank sends it to the Paying Bank via the Clearing House (see illustration). The cycle ends when payment is made (or the cheque is returned). The full cycle, including the 1 day (T+1) clearing should be factored in estimating when funds would be available.