East African Community (EAC) partner states’ Central Banks were on Wednesday, September 11 called upon to embrace technology as part of efforts to facilitate cross-border payments within the EAC Common Market.

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Making the appeal, EAC Secretary General Veronica Nduva said that some of the challenges behind the low uptake of the East African Payments System (EAPS) include limited capacity, lack of inter-operability, communication gaps between central banks’ and stakeholders, fear of online scams, protectionism by central banks and overlapping membership by partner states to payment systems set up by various regional economic communities.

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Launched in 2014, EAPS is a secure, effective and efficient funds transfer system whose aim is to enhance efficiency and safety of payments and settlements within the EAC region.

Nduva underscored the role of regional Central Banks in putting in place an efficient payments and settlements system for the region, adding that unlike many markets in goods and services, financial markets and systems are trust‐based markets – in which case, the role of central banks in building public confidence in the uptake of new technology-driven payment systems is vital.

She said that enabling cross-border traders and investors to pay and receive payments for goods and services through a cost-effective payment system is likely to increase intra-regional system is likely to increase intra-regional trade and investment.

"In this regard, an efficient and reliable cross-border payment service is essential for the smooth function of any regional economic integration, such as EAC. It is partly for this reason that the East African Monetary Union (EAMU) Protocol requires EAC partner states to harmonise and integrate their payment and settlement systems during the transition to a single currency to promote trade and investment in the region,” said Nduva.

"Over the last decade, with support from our development partners, many initiatives have been implemented both at national and regional levels, towards modernisation and integration of payment systems in the region. Some of these initiatives were implemented by the public sector, mainly through central banks, but some were implemented by the private sector, particularly commercial banks, mobile money operators and other stakeholders.”

The Secretary General was speaking as she opened a two-day Roundtable Discussion on Coordination of EAC Donor Support in the Area of Payment Systems at the EAC Headquarters in Arusha, Tanzania. The forum brought together development partners, partner states’ Central Banks, and EAC Secretariat experts on payments and settlements systems.

Nduva said that as a result of payment system initiatives that were largely driven by the adoption of new technologies, the payment system landscape in the region had undergone far-reaching changes.

"Within most of the EAC partner states, digital financial services have made payment systems efficient, less expensive and more inclusive. Currently at national levels, there exist infrastructure and governance structures that allow the private sector to better provide payment and financial services,” she said.

"Commercial Banks have traditionally specialised in bulk transfers that process high-volume and wire transactions that often involve high values. Mobile money operators have focused in retail payments and have been vital in improving financial inclusion among millions of poor people who are unbanked. Much progress has been at domestic transactions.”

But the Secretary General observed that progress on cross-border payments has been much slower.

"Moving money from one partner state to another is still slow and expensive. Interoperability of digital payment systems at regional level is missing. Uptake of the East African Payment System (EAPS) has been very low. As a result, most banks in the region still use foreign correspondent banks to effect regional cross border payments,” said Nduva.

She said that there was need to for partner states to build on successes at the domestic level to attain inter-operability of digital payment systems at the regional level.

"Our aspiration as a region is to make cross-border payments faster, safer, cheaper, transparent and more integrated in order to facilitate trade and financial inclusion in the region through the: harmonisation of policies and regulations; enhancement of payment systems infrastructure and capacity building of payment systems actors and stakeholders,” she said.

The Bill and Melinda Gates Foundation Senior Programme Officer (East Africa), Amani M’Bale, said that payment systems enhance financial inclusion of all groups and were therefore key to addressing poverty and household resilience in the region.

She said that cross-border payment systems were crucial for intra-regional trade, adding that the Bill and Melinda Gates Foundation would support such systems at the national and regional levels.

Allen Asiimwe, the TradeMark Africa (TMA) Chief of Programmes and Deputy CEO, said that cross-border traders lose large sums of money due to currency exchanges for payment purposes.

Asiimwe disclosed that financial transactions was another pillar that TMA is working on due to the informal nature of trade at the regional and continental levels.

"More than 70% of our trade is informal so we need to get our payments systems right,” she said.

Dr Joy Maria Kategekwa, the Director for Regional Integration Coordination at the African Development Bank (AfDB), said that the multilateral lender was interested in building capacity in regional payment systems in addition to ensuring their inter-operability and functionality.

Dr. Kategekwa hailed the Pan-African Payment System (PAPSS) as a platform that had eased cross-border payments and transactions across the African continent.

PAPSS is a financial market infrastructure that enables instant, cross-border payments in local currencies within African markets. It is designed to revolutionise cross-border payments, making them faster, cheaper, and safer.

Bjoern Richter, the Cluster Coordinator of the GIZ-EAC Project, emphasised the need for the EAC to put in place a digital market, build the required technical capacity and boost connectivity for purposes of enhancing intra-regional trade.

Also present at the forum were the EAC Deputy Secretary General in charge of Trade, Customs and Monetary Affairs, Annette Ssemuwemba, Cecilia Paradi-Guilford, the Co-Task Team Leader for Eastern Africa Regional Digital Integration Project (EARDIP), Isaku Endo, the Senior Financial Sector Specialist at the World Bank, Aime Uwase, the Director of Planning at the EAC Secretariat, and representatives of partner states’ central banks.