Banks stop charges for upcountry cheque clearance

Upcountry cheques will no longer attract extra charges following Kenya Bankers Association’s (KBA) announcement on Thursday of a waiver on clearing fees from July 1.

Banks are expected to stop charging cheque clearing commission (remittance commission) for cheques issued outside Nairobi in a move meant to push banks to decentralise the cheque truncation system to all their branches.

Cheque truncation refers to a process in which physical cheques presented for payment in a bank by individuals or corporates are converted into electronic form and the image transmitted to the clearing house for processing and eventual payment.

The upcountry fee waiver represents a significant drop in the cost of doing business in the country.

Customers normally pay 2.5 per cent of the face value of the cheque when cashing the same. But the 2.5 per cent applies to cheques up to a certain limit such as Sh1 million, beyond which a fixed charge of Sh1,000 is levied. The charges vary from bank to bank.

“The upcountry clearing commission on cheques presented through the clearing house should cease in line with the KBA guidelines,” said Mr Habil Olaka, the chief executive officer of KBA.

The changes follow implementation of the reduced clearing cycle to two working days from four days in the wake of cheque truncation.

The new system went live in October last year. KBA said that the waiver would help to speed up acquisition of the technology by remote bank branches.

READ: Electronic system reduces cheque processing time

KBA said that banks, especially those in the rural areas, would have to buy cheque truncation machines for their upcountry branches by year end.

“The objective is to have banks decentralise their cheque truncation system by moving the equipment to all their branches by the end of the year and stop the movement of cheques from branches,” said Mr Olaka.

Previously, cheques were moved physically by couriers to bank headquarters and to clearing house at the Central Bank of Kenya (CBK).

Banks are passing on the benefits of reduced transaction costs, which will come as a huge relief for institutions and businesses with countrywide networks.

The cheque truncation system is expected to spur economic activity by speeding up business transactions.

KBA and CBK are implementing the electronic system at an estimated cost of Sh600 million as part of reforms in the national payments system.