The East African business community is pushing for the harmonization of the national payment systems, but many hurdles are in the way. The East African Business Council- EABC wants full interoperability of mobile money networks and cross-border transactions and payments at the EAC level, according to the Chief Executive Officer, John Bosco Kaliisa.
Speaking during the EABC- EAC EU AfricaRise Webinar on Harmonization of Payment System in the EAC, John Bosco Kalisa, the EABC Chief Executive, said this is one of the ways through which the EAC Partner States can manage to reduce currency exchange fees during transactions, as the bloc pursues a single currency as the ultimate long-term solution. The EAC is the most expensive destination for remittances, with the sender having to part with more than 9 percent of the value being remitted.
This is also above the Sub-Sahara average of 8.19 percent. “High transaction costs and currency exchange rate volatility set back the growth of intra-EAC trade, which already lags behind other regions,” he said. According to the World Bank’s Remittance Price Worldwide for the fourth quarter of 2020, it costs an average of 6.5 percent to send 200 dollars globally, while South Asia is the cheapest to deal with at 4.88 percent of the cost.
Sending money to the Middle East and North Africa from anywhere in the world costs 6.58 percent. Paul Baker from Africa RISE, a technical assistance platform targeting poorer regions advises that the EAC countries should think of harmonizing payment systems as a propeller for the EAC Monetary Union.
“Integrated payment systems are crucial for the realization of the East African Monetary Union, as they facilitate the payments for goods and services, the cross-border flows of capital as well as remittances within the region,” he said. This, according to him will also deepen integration as the EAC becomes a digital economy.
“The East Africa Single Digital Market (SDM) supports the region to “become a more deeply integrated and dynamic digital investment, innovation, and growth hub,” Kalisa said. He says that digital payments are one of the core elements for the single online market layer to enable East Africa to pay for domestic and international services.
Mukashema Adeline, Senior Principle Payment System Department in the National Bank of Rwanda, told a regional forum Thursday that Rwanda joined the East African Payment and Settlement System in 2014 and that this had enabled banks and telecoms to send money across the region and also supports international Automated Teller Machine (ATM) cards.
James Bukulu, Deputy Director – National Payment Systems Bank of Uganda called on countries to, in the meantime, deploy a national switch that helps harmonize price charges by the local operators. “Uganda is in the process of deploying a national switch and the EAC bloc should come up with a similar initiative to support mobile transactions at the regional and international level, ” he said.
The East African Payment And Settlement Systems (EAPS) allow the processing and settlement of transactions in local currencies. However, uptake of the system among the EAC Partner States is still low due to low volumes of intra-regional trade and the stiff competition from banks with established correspondent bank relationships.
Under this arrangement, a correspondent bank authorizes another bank (respondent) banks to settle transactions on behalf of another country. However, authorities and experts say this requires closer supervision as the arrangement is vulnerable to money laundering. A harmonised payments system makes regional currencies freely convertible to enable transactions without having to convert national currencies into dollars to enhance regional trade and lower transaction costs.
The challenges to harmonization of cross-border payments include Regulatory and infrastructure gaps such as payment settlement workarounds, high compliance costs, low trade of certain currencies, requirements for pre-funding accounts, bloated payment value chain, and taxation.
Experts also urge that EAC partner states to review and update laws and regulations for payment systems including those related to data protection and e-payment, enhancing Know Your Customer Information, and payment data collection, among others.
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