CBK introduces new rules for large bank transactions: How they’ll affect you

The new system is set to go live on September 30, 2024, aiming to bring greater efficiency, security, and transparency to Kenya's payment processes.

Some banks have already started informing their customers about this change.

"Dear Customer, in line with the new Central Bank of Kenya (CBK) guidelines, we will be introducing the use of Purpose of Payment (POP) codes and requiring additional beneficiary's details for Real-Time Gross Settlement (RTGS) payments," an excerpt of an alert seen by the Pulse Kenya news desk says.

A Purpose of Payment (POP) code system is a classification system used in financial transactions to specify the reason or purpose for which a payment is being made.

POP codes provide standardised categories that describe why a payment is being made.

CBK Governor Kamau Thugge during a past media interview CBK Governor Kamau Thugge during a past media interview Pulse Live Kenya

Here’s what you need to know about the upcoming changes and how they will affect your day-to-day life.

What’s Changing?

Real-Time Gross Settlement (RTGS) payments for large transactions like business payments, property purchases, and government transfers, will adopt ISO 20022 messaging standards.

This global standard allows banks to process payments faster while collecting more detailed information, such as the purpose of the payment, source of funds, and the beneficiary’s details.

This data will enable banks to better understand the relationships between the parties involved in the transaction and ensure that all payments are safe and legitimate.

READ: 39 richest banks in Kenya by asset base - CBK report

How Will This Affect You?

Faster transactions

Payments will now be processed more quickly and securely. The new system will allow banks to gather all necessary information upfront, reducing delays caused by insufficient details.

More information required for payments

You’ll be required to provide additional information, such as the purpose of payment (POP) code and more beneficiary details. While this adds a step to the process, it ensures greater transparency and protection against fraud.

Fewer unnecessary delays

The additional data helps banks better understand transactions, reducing the likelihood of legitimate payments being flagged or delayed due to insufficient information.

Enhanced Fraud Prevention The data provided will help banks and regulators detect and prevent suspicious activities like money laundering and terrorism financing, making Kenya’s financial system more secure.

CBK Governor Kamau Thugge during a meeting in Nairobi CBK Governor Kamau Thugge during a meeting in Nairobi Pulse Live Kenya

Key Dates to Note

Pilot Phase (September 16-20, 2024): Financial institutions will validate their systems to ensure they are ready for the upgrade.
Dress Rehearsal (September 23-26, 2024): A final test under live conditions to confirm system readiness.
Go-Live Date (September 30, 2024): The new system will be fully operational.

Common uses of RTGS

RTGS (Real-Time Gross Settlement) transactions are quite common, especially for high-value, time-sensitive payments.

However, their usage depends on the type of users and the context.

For Businesses

RTGS is widely used in business-to-business (B2B) transactions, especially when large sums of money are being transferred between companies or from businesses to suppliers.

It's preferred for corporate payments that need to be settled immediately.

It is a common payment method for paying suppliers, settling large invoices, or inter-company transfers where immediate clearance is essential.

For Individuals

For most individuals, RTGS is less commonly used compared to other payment methods like mobile money or online banking for smaller transactions.

However, when it comes to high-value personal transactions, such as property purchases, large loan repayments, or investment transfers, individuals may opt for RTGS due to its speed and security.

For Governments and Institutions

Governments, large institutions, and financial bodies frequently use RTGS for critical payments like tax transfers, interbank settlements, or government disbursements.

These transactions often involve large amounts of money and require real-time processing.

An AI generated image of a man applying for a loan at a bank An AI generated image of a man applying for a loan at a bank Pulse Live Kenya

Interbank Settlements

RTGS is the standard for interbank transfers, where banks settle their own transactions or transactions on behalf of customers.

It's a backbone of financial systems, ensuring quick clearance of funds between banks.

Cross-Border Transactions

For cross-border payments, SWIFT or other international wire transfer systems are more common, though RTGS may be used in some specific cases for large-value international payments, depending on the countries involved.