What lower interbank transfer fees via TIPS mean

Dar es Salaam. The newly introduced caps on fees for bank-to-bank transfers through the Tanzania Instant Payments System (TIPS) will strengthen liquidity in the banking industry and promote the transition towards a cashless economy, according to analysts.

The Bank of Tanzania (BoT) recently announced new fee limits for bank-to-bank transactions conducted through retail platforms and channels such as TIPS and the Tanzania Automated Clearing House (TACH).  The news rates will come into effect tomorrow.

According to a circular signed by BoT deputy governor (financial stability and deepening) Sauda Msemo, transfer fees will not exceed Sh2,000 for transactions of up to Sh20 million.

Transfers ranging from Sh500,001 to Sh5 million will be subjected to charges ranging from zero to Sh1,500, with transfers ranging from Sh50,001 to Sh500,000 incurring charges of between zero and Sh1,000. Transfers of Sh1 to Sh50,000 will attract charges of from zero to Sh500.

“The Bank of Tanzania has observed that high charges are imposed on customers for transferring funds from one bank to another through retail platforms and channels, which increases the burden on consumers of these services,” the BoT statement said.

TIPS, operated by the BoT, facilitates real-time payments among various digital financial service providers (DFSPs), including banks and non-banking entities such as mobile money operators.

TACH, on the other hand, is a centralised automated system operated by the BoT for clearing cheques and electronic funds transfers (EFTs).

TIPS enables one to instantly make transfers and payments between bank accounts and mobile wallets around the clock.

The system is an upgrade of the Tanzania Interbank Settlement System (TISS), which charges a fee of up to Sh10,000 for each transfer regardless of the amount involved.

“The system allows for cheaper bank-to-bank transfers. It’s cost-effective and enhances customer convenience and trust by providing immediate confirmation and notification of payments. With TISS, customers had to wait for a number of minutes or even hours before transactions were completed,” banker and analyst Kelvin Mkwawa told The Citizen.

He noted that through TIPS, the central bank will be able to address liquidity management issues by maintaining a single connection as the system will support the BoT’s objective of retaining liquidity within the banking system through convenient and easy money transfers.

“With cost-effective and straightforward transactions being made possible, there will be no need to resort to alternative channels. Consequently, liquidity will be maintained within the banking system,” Mr Mkwawa said.

A seasoned economist, Prof Abel Kinyondo, said by reducing transfer costs, the central bank will encourage many more people to conduct banking transactions.

“Making banking transactions more affordable will also promote a cashless economy. Customers will be encouraged to use bank-to-bank transfers instead of carrying large sums of cash from one bank to another and risking being robbed and even harmed. The new system will also make it easier for the relevant authorities to trace suspicious transactions,” he said.

Prof Kinyondo added that promoting bank-to-bank transfers is beneficial for the country in terms of revenue collection, with the Tanzania Revenue Authority (TRA) being able to estimate tax more accurately.

According to the BoT, while mobile phones have continued to play a key role in bridging the infrastructural gap by providing a platform for the unbanked population to access financial services, TIPS provided a platform for facilitating instant and secure retail payments and transfers between digital financial service providers.