Banks and microfinance banks have begun testing the updated system for sending high-value financial transactions to speed up transfers while tightening screening for fraud.
Banks on Monday began testing the updated system that incorporates ISO 20022 — a global standard for exchanging electronic messages between financial institutions using standardized messaging and encoding to provide better visibility into the purpose of each financial transaction.
The standard provides nearly ten times more data on each payment, including the purpose of the payment, the original source and the ultimate beneficiary, allowing banks and regulators to stop fraud, money laundering and terrorist financing while catching transactions more quickly.
A circular issued by the Central Bank of Kenya to banks and microfinance banks shows that the pilot phase of the Kenya Electronic Payment and Settlement System (Kepss) migration to ISO 20022 will continue until Friday, September 20. Kepss is Kenya’s payment system for high-value and time-sensitive domestic payments.
“Adopting ISO 20022 messages will transform how financial messages are exchanged by enhancing operational efficiency and providing richer, more usable data for analytics,” Michael Eganza, Director of Banking and Payment Services at the Central Bank of Kuwait, said in the bulletin.
The structured message format will also help banks understand the underlying relationship between all parties in the payment chain, eliminating the chances of unnecessary delays to secure transactions.
CBK says the pilot phase, which involves aligning technical interfaces with the new standard, will be followed by a four-day trial phase in which live operations will be simulated until September 26.
Banks are then scheduled to start implementing the ISO 20022-compliant system on September 30.
All financial institutions involved in cross-border payments have until November 2025 to switch to this new standard, which aims to create a single common language for payments.
This represents another upgrade to Kepss, since June 2020 when the Central Bank of Kuwait implemented a major upgrade to this real-time gross settlement system.
The 2020 upgrade added capabilities such as increasing processing capacity to over 1 million transactions per day, up from the daily average of 19,000 transactions.
The Central Bank of Kuwait says the move to the new standard is part of the implementation of the National Payments Strategy 2022-2025, in which the regulator aims, among other things, to enhance the reporting of fraud incidents through robust data reporting.
The regulator said that through ISO 20022, it will adopt enhanced big data analytics to support proper oversight of current and emerging security threats by relying on structured data.
Kenya’s financial sector has witnessed an increasing pace of development with developments such as mobile banking, online betting, digital credit, online foreign exchange trading, and the use of cryptocurrencies, all of which require stringent screening against money laundering and terrorist financing risks.