Banks switch to upgraded system for large payments

By wazup on September 18, 2024 Comments Closed / 61 views

Banks and microfinance banks have started testing the upgraded system for messaging high-value financial transactions to increase speed of transfers while heightening the screening for fraud.

The lenders on Monday started piloting the upgraded system which incorporates ISO 20022 Standard —a global standard for exchanging electronic messages between financial institutions using uniform messaging and coding to give better insight into the purpose of every financial transaction.

The standard provides nearly 10 times more data about each payment, including the purpose of payment, original source and ultimate beneficiary, allowing banks and regulators to stem fraud, money laundering and terrorism financing while setting transactions at enhanced speed.

The Central Bank of Kenya (CBK) circular to banks and microfinance banks shows the pilot phase of migrating the Kenya Electronic Payment and Settlement System (Kepss) to ISO 20022 will run up to Friday, September 20. Kepss is Kenya’s payment system for high-value and time-critical domestic payments.

“The adoption of ISO 20022 messages will transform how financial messages are exchanged by enhancing operation efficiency and delivering richer usable data for analytics,” said Michael Eganza, CBK director of banking and payment services, in the circular.

The structured messaging format will also help banks understand the underlying relationship between all parties in the payment chain, eliminating chances of unnecessarily flagging and delaying safe transactions.

CBK says the pilot phase, which entails aligning the technical interfaces with the new standard, will be followed by a dress rehearsal phase in which a simulation of live operations will be carried out for four days to September 26.

Banks will then go live with an ISO 20022-compliant system on September 30.

All financial institutions involved in cross-border payments have up to November 2025 to switch to this new standard that intends to create a single common language for payments.

This marks another upgrade on Kepss, since June 2020 when CBK implemented a major upgrade on this real time gross settlement system.

The 2020 upgrade added capabilities such as increasing the processing ability to more than one million transactions per day, up from daily average of 19,000 transactions.

CBK says the migration to the new standard is part of implementing the National Payment Strategy 2022-2025, in which the regulator aims at, among other things, enhance reporting of fraud incidents through robust data reporting.

The regulator said through ISO 20022, it will adopt enhanced big data analytics to support appropriate oversight over current and emerging security threats by relying on structured data.

Kenya’s financial sector has seen a heightened pace of sophistication with developments such as mobile money banking, online betting, digital credit, online foreign exchange trading and the use of cryptocurrencies all requiring heightened checks against money laundering and terrorism financing risks.