Banking Payment Systems Guide

THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Banker - Customer Relationships
Outline of Bank Services
Types of Accounts
Know Your Customer (KYC)
Savings and Fixed Deposit Accounts
Cheques, Money Transmission, and Other Payment Mechanisms
MODULE COVERAGE
1
Code of Banking Practice
Plastic Cards and Electronic Banking

OF BANKING &
FINANCIAL SERVICES
UIBFS
What is a Cheque?
A Cheque is an unconditional order in writing, addressed to a banker, signed by the
drawer(account-holder), requiring him to pay on demand a certain sum of money
to or to the order of certain person(payee) or to the bearer
There are three main parties to the cheque – the drawer, the drawee and the payee
i. Drawer is the account holder who issues the cheque instructing the bank to pay
ii. Drawee – is the bank that has been instructed to pay
iii. Payee – is person who is the beneficiary who will receive the money
Features of a cheque
• A cheque must be in writing- It can be written in ink pen, ball point pen, typed or
even printed. Oral orders are not considered as cheques.
• A cheque is an unconditional order - issued by the customer to his bank. It is not a
request for payment and will therefore be paid on presentation as long as it is
signed in accordance with customer’s mandate he account.
• A cheque must be signed by customer (Account holder) - Unsigned cheques or
signed by persons other than customers are not regarded as cheque.
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In 1999 a cheque standard was adopted to improve on the cheque
processing and minimize on frauds involving cheques. One of the
requirements was that all cheques should contain at the bottom a
magnetic code line.
i. A code line is a machine readable area on the bottom face of a
cheque that is encoded with the cheque details:
ii. Serial Number (6 digits)
iii. Check digit no. (2 digits)
iv. Bank (2), Branch (2) & Clearinghouse (2)
v. Account number
vi. Transaction/Voucher type (2 digits)
vii. Amount.
viii. The first 5 digits are pre-coded while the amount is coded at the
time of issue
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FINANCIAL SERVICES
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Different types & classifications of cheques
• Bearer Cheque - When the words "or bearer" appearing on the face of the
cheque are not cancelled, the cheque is called a bearer cheque. The
bearer cheque is payable to the person specified therein or to any other
else who presents it to the bank for payment. However, such cheques are
risky; this is because if such cheques are lost, the finder of the cheque can
collect payment from the bank.
• Order Cheque -When the word "bearer" appearing on the face of a
cheque is cancelled and when in its place the word "or order" is written on
the face of the cheque, the cheque is called an order cheque. Such a
cheque is payable to the person specified therein as the payee, or to any
one else to whom it is endorsed (transferred).
• Open Cheque -When a cheque is not crossed, it is known as an "Open
Cheque" or an "Uncrossed Cheque". The payment of such a cheque can be
obtained at the counter of the bank. An open cheque may be a bearer
cheque or an order one.
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OF BANKING &
FINANCIAL SERVICES
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• Crossed Cheque-Crossing of cheque means drawing two
parallel lines on the face of the cheque with or without
additional words like "& CO." or "Account Payee" or "Not
Negotiable".
• Anti-Dated Cheque -If a cheque bears a date earlier than
the date on which it is presented to the bank, it is called as
"anti-dated cheque". Such a cheque is valid up to six
months from the date of the cheque.
• Post-Dated Cheque -If a cheque bears a date which is yet to
come (future date) then it is known as post-dated cheque.
• Stale Cheque - If a cheque is presented for payment after
six months from the date of issue it is called a stale cheque.
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OF BANKING &
FINANCIAL SERVICES
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Advantages and disadvantages of cheques
Advantages:
• No need to carry cash all the time
• Convenience of making future payments through post-dating
cheques
• Subject to less risk of third-party fraud than some other methods of
payments.
Disadvantages:
• Risk of loss or theft of the cheque
• Signatures can be forged on the cheque
• Payments generally take longer to mature or be received
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OF BANKING &
FINANCIAL SERVICES
UIBFS
What is money transmission?
• Money Transmission is one of the services that are offered by banks to
customers although organizations such as Money Gram and Western
Union are also in the same business. Money can also be transferred from
one country to another using the banking system through SWIFT.
• Money transmission therefore simply means transferring money from one
location to another within the same bank, between banks in the country
and internationally between banks and their correspondents.
• Customers generally use money transmission to send money abroad to
family or to settle business indebtedness and pay for services rendered.
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OF BANKING &
FINANCIAL SERVICES
UIBFS
What are payment mechanisms?
A payment mechanism (also called payment system) is a financial system supporting
transfer of funds from suppliers to the users (borrowers), and from payers to the
payees, usually through exchange of debits and credits among financial
institutions..
Types of payment systems
Typical types of payment mechanisms are:
• Real Time Gross Settlement (RTGS) - Basically, this is a system for large-value
interbank funds transfers. This system lessens settlement risk because interbank
settlement happens throughout the day, rather than just at the end of the day.
• Clearing - is the periodic settling of bankers' claims against each other, for which
local banks establish clearinghouse associations. Such an institution involves
frequent meetings of local bank representatives to settle the balances among
member banks. The balance (debit or credit) for each bank at the close of a
meeting is forwarded to the Central bank, which adjusts the individual accounts
accordingly.
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FINANCIAL SERVICES
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E-commerce payment systems –
• An e-commerce payment system facilitates the acceptance of electronic
payment for online transactions. Also known as a sample of Electronic
Data Interchange (EDI), e-commerce payment systems have become
increasingly popular due to the widespread use of the internet-based
shopping and banking.
• SWIFT-Society for World Wide Interbank financial Telecommunications is
an organization that facilitates the exchange of payment messages
between Financial Institutions around the world in an efficient manner
between correspondent banks. SWIFT provides the framework for an
international communication system between financial institutions.
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FINANCIAL SERVICES
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Interbank Network(ATM,EFT,EFTPOS –
• This is an interbank network that allows a customer of one bank to
withdraw funds from another bank’s ATM also known as an Automated
Teller Machine (ATM). For example a customer of Bank of Baroda will be
able to draw from say Stanbic Bank ATMs anywhere in the country as long
as they are members of the interbank network consortium or ATM
network.
• Electronic Funds Transfer (EFT) – is the transfer of funds between accounts
by electronic means rather than conventional paper-based payment
methods, such as Cheque writing. EFT is any financial transaction
originating from a telephone, electronic terminal, computer, or magnetic
tape.
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OF BANKING &
FINANCIAL SERVICES
UIBFS
Advantages and disadvantages of Electronic Payments
Advantages of E-payments
• Convenience - Individuals can pay their bills and make purchases at
unconventional locations 24 hours a day, 7 days a week, 365 days a year.
• Saving time. It takes a matter of seconds or minutes to transact and
therefore saves time.
• Lower cost – Most banks have no charges for ATM transactions or charge a
nominal fee
• Secure – As long as one is not careless with the secret personal
identification number (PIN), electronic transactions have proved to be
more secure than say writing cheques, mailing them, forging signatures
etc. Encryption technology allows an individual’s personal financial data to
be scrambled before it is sent electronically. It also lowers the risk of
human error by reducing the number of people touching the payment
once it leaves the payer.
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Disadvantages of E-payments
• Lack of authentication - There is no way to authenticate or verify that the
individual entering the information online is who they say they are. There
is no request for picture identification or even a signature. Therefore, an
unauthorized user may carry out transactions in your name before you
have time to alert authorities the information has been taken.
• Most sites require a customer to open an online account with them - You
need to register with the institution in order to be authorized to perform
money transactions with them. While the overall payment process is
efficient, the initial registration to a given site can be time-consuming. It
also involves a username and a password, which implies the need of
password protection, to maintain an e-payment account at each
organization.
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Types of Accounts
MODULE COVERAGE
13

OF BANKING &
FINANCIAL SERVICES
UIBFS
Savings accounts
• A savings account is an account where funds are available on demand but
subject to certain conditions.
• Under normal circumstances credit interest will be paid provided credit
balances are maintained above certain minimum limits.
• Interest rates can fluctuate with market conditions and credit interest is
normally capitalized on a monthly basis.
• Transactions that can take place on these accounts include deposits,
withdrawals, ATM usage and inter-account transfers.
• Because of competition, Uganda financial institutions offer a very big
variety of branded savings products and different incentives are offered to
attract savers.
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FINANCIAL SERVICES
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Fixed deposit accounts
• A fixed deposit account is a type of account where a customer agrees to
deposit a specific amount of money for a specific period and in return gets
a higher interest rate compared to what he earns on an ordinary savings
account.
• Fixed deposits are normally fixed for three, six, and twelve months
respectively although this is normally a subject of negotiation between the
institution and the customer.
• The customer is not expected to withdraw the funds before maturity as he
will otherwise forfeit interest earned.
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OF BANKING &
FINANCIAL SERVICES
UIBFS
Types of Accounts
MODULE COVERAGE
16

OF BANKING &
FINANCIAL SERVICES
UIBFS
What are plastic cards in banking?
• Plastic cards, commonly known as ATM cards in Uganda, are electronic
cards issued by banks to enable bank clients have 24 hour access to their
accounts. These cards have the ability to store account information and to
facilitate automatic transactions between the client and the bank without
the presence of any bank staff.
• Two types of common electronic plastic cards are the debit and credit
cards.
Debit cards – This is an electronic card issued by a bank which allows
bank clients access to their accounts 24 hours a day. The main feature of a
debit card is that you will have access only to your credit balance and no
more.
• The major benefits to this type of card are convenience and security.
Along with the convenience of accessing account funds at anytime, it also
removes the hassles associated with going to the bank, writing cheques
etc
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OF BANKING &
FINANCIAL SERVICES
UIBFS
Credit Cards - Allow the customer to draw money in excess of his credit
balance on his account up to agreed limits. The credit limit, in most cases,
is a revolving limit and the customer may use the available credit as long
as the minimum payment due is paid each month by the due date.
There are four major players in the international field of Plastic card business.
These are:
• Visa International
• MasterCard international
• Diners club
• American Express
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OF BANKING &
FINANCIAL SERVICES
UIBFS
What is electronic banking?
Electronic banking is a form of banking where funds are transferred through
an exchange of electronic signals between financial institutions, rather
than an exchange of cash, cheques, or other negotiable instruments. The
ownership and transfers of funds between financial institutions are
recorded on computer systems connected by telephone lines or other
electronic communication media.
Customers using electronic banking services can among other services use it
to:
• Withdraw Money
• Check account balance
• Deposit money
• Exchange money
• Pay bills and Loans
• Generate bank statement
• Transfer money
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OF BANKING &
FINANCIAL SERVICES
UIBFS
Advantages and disadvantages of plastic cards and e-banking
Advantages
• Convenience of withdrawing from anywhere in the world -There are over a million
VISA ATMs worldwide
• The convenience of shopping and paying for services anywhere in the world using
the cards.
• Convenience of not having to carry hard cash – affording the customers peace of
mind
• Convenience of cash access 24 hrs a day- Most ATMs operate 24 hours in all major
towns all over the country. Online banking sites never close; they're available all-
day, seven days a week.
• Convenience of simplified money management- You can keep track of how much
you spend and on what. You can access detailed monthly statements that show all
your cash transactions including withdrawals.
• Worldwide, regardless of location - If you're out of your country when a money
problem arises, you can log on instantly to your online bank and take care of
business at any time
• Transaction speed - Online bank sites generally execute and confirm transactions
at or quicker than ATM processing speeds.
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• Efficiency - You can access and manage all of your bank accounts, including
securities, from one secure site.
• Effectiveness - Many online banking sites now offer sophisticated tools,
including account aggregation, stock quotes, rate alerts and portfolio
managing programs to help you manage all of your assets more effectively.
Most are also compatible with money managing programs such as
Quicken and Microsoft Money.
Disadvantages
• Start-up may take time and formalities: In order to register for your bank's
online program, you will probably have to provide ID and sign a form at a
bank branch. If you and your spouse wish to view and manage your assets
together online, one of you may have to sign a durable power of attorney
before the bank will display all of your holdings together.
• Learning curve: Banking sites can be difficult to navigate at first. Plan to
invest some time and/or read the tutorials in order to become
comfortable in your virtual lobby. For busy executives who do not have
spare time, this can be a challenge
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Disadvantages…
• Difficulties posed by bank site changes: Even the largest banks periodically
upgrade their online programs, adding new features in unfamiliar places.
In some cases, you may have to re-enter account information.
• Proneness to internet and other electronic fraud – this is perhaps the
greatest threat to electronic banking. There are increasing numbers of
international internet criminals who target theft of bank customers’
electronic identity to defraud them
• Internet breakdowns and system malfunctions, causing inconveniences to
electronic banking customers
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OF BANKING &
FINANCIAL SERVICES
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Types of Accounts
MODULE COVERAGE
23

OF BANKING &
FINANCIAL SERVICES
UIBFS
What is a Code of Banking Practice?
The code is a voluntary standard of acceptable conduct which sets standards for its
members to observe. The Code of Banking Practice stipulates the practice for
banks to follow when dealing with customers. Although it is voluntary, once
adopted by a bank, it becomes contractually enforceable.
Useful information on a range of banking matters in the Code of Banking Practice
normally includes:
• Banker and customer relationships in business
• Disclosure of costs, product features, legal and other implications of using the
bank’s products
• Conduct of the bank towards customers
• Provision of documents and other information in a timely way to customers
• Contractual enforceability of statutory obligations
• Debt collection provisions, including the related fairness to customers
• Complaint handling procedures
• Dispute resolution
• Financial hardship handling
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OF BANKING &
FINANCIAL SERVICES
UIBFS
Uganda Code of Good Banking Practice
The Uganda Code of Good banking Practice covers the relationship between
Banks and their Customers in respect of services offered by UBA (Uganda
Bankers Association) member commercial banks.
They include, but may not be limited to maintenance of current, savings and
other deposit accounts, overdrafts and loans and other services as from
time to time individual member banks may choose to offer.
Code of Good Banking Practice in Uganda
• The code of Good Banking Practice has been drawn up by the Uganda
Bankers’ Association (UBA) to guide all member Banks of the UBA in their
relationship with their customers where appropriate.
• It is a voluntary code that allows competition and market forces to operate
to encourage higher standards for the benefit of customers. The code will
be reviewed from time to time as may be found necessary.
• All institutions subscribing to this code will ensure that their staff are
aware of it and will make it available to their customers upon request. Any
member Bank may observe a higher standard if it so wishes.
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OF BANKING &
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Objectives of the Code of good Banking Practice
The objectives of the code are:
i. To set out the standards of good banking practice which member banks of
the UBA will follow in their dealings with their customers.
ii. To ensure that Banks will act fairly and reasonably in all their dealings with
their customers.
iii. To enable Banks to help their customers understand how their accounts
operate and give them a good understanding of Banking services.
iv. To promote confidence in the integrity and security of the Banking system.
v. To promote and maintain high standards of professional and moral conduct
recognized within the banking industry.
Banks will conduct their business with uncompromising integrity and fairness so
as to promote complete trust and confidence in the Banking industry. In
meeting this fundamental objective, banks will conduct their relationships
with the authorities, their clients, competitors and the community at large,
in the manner described below.
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OF BANKING &
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UIBFS
AUTHORITIES:
Banks will comply with all relevant Laws and Regulations that will
be in force from time to time in the Republic of Uganda.
FUNDAMENTAL PRINCIPLES:
Banks will observe the following fundamental principles in dealing
with their customers.
i) Avoid conflicts of interest
ii) Offer their services irrespective of race, religion or gender
iii) Safeguard deposits
iv) Act fairly and reasonably in all their dealings with their
customers
v) Respect confidentiality
vi) Recognize the need to ensure the reliability of their systems and
technology.
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FINANCIAL SERVICES
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OPENING AND CLOSING OF ACCOUNTS:
To assist in protecting their customers, members of the public and themselves
against fraud and other misuse of the banking system, banks, when opening
accounts, will reasonably satisfy themselves as to the identity of the applicants,
through the production of relevant Identification (ID) documents and acceptable
references, or the seeking of information from another bank, Credit Reference
Bureau (CRB) when and if applicable.
When opening A/Cs, all banks are to observe the minimum guidelines
Subject to contractual and other legal obligations:
• Banks may close accounts or discontinue service at any time, although reasonable
notice will be given unless there are exceptional circumstances;
• Customers may close accounts at any time subject to settlement of any obligations
to the Bank.
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OF BANKING &
FINANCIAL SERVICES
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TERMS AND CONDITIONS:
Banks should ensure that current terms and conditions governing their
banking services, which may vary from time to time at their discretion, are
available to their customers on request. The said terms and conditions
should be expressed in plain language to enable the prospective customer
understand fairly the relationship he/she is entering into with the Bank.
Banks will encourage their customers to acquaint themselves with and
abide by the current terms, conditions and obligations relating to their
financial dealings with their banks.
INTEREST AND CHARGES:
Banks will advise their customers through an appropriate medium of the
following information when accounts are opened, when requested or,
with due notice when required, when changes are made to the
information regarding among others:
i) the rates of interest payable to or by them;
ii) any service/administration fees and other applicable charges;
29

OF BANKING &
FINANCIAL SERVICES
UIBFS
iii) the method of calculation of interest and charges and the
frequency at which these are debited and/or credited to customers’
accounts.
iv) Charges for services not specified at the time of opening the
Account in the published tariffs will be advised on request or at the
time the service is offered.
v) Any changes in the tariffs given to the customer i.e. details of any
charges will be made known to the customer in an appropriate
manner.
vi) A customer intending to borrow money will be advised in clear
terms the level and type of interest rates applicable.
vii) Banks shall advise borrowing customers on all other charges.
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OF BANKING &
FINANCIAL SERVICES
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STATEMENTS:
Banks will provide customers with or customers may obtain periodic written
statements which will contain:
(i) the dates, amounts and brief details of all transactions,
(ii) interest debited or credited.
CHEQUES ACCOUNTS
To assist in protecting their customers, members of the public and themselves
against fraud and other misuse of the banking system, Banks will take care in
issuing cheque books and will encourage customers to:
i) Exercise care and safety precautions in the keeping of their cheque books and in
the issuing of cheques;
ii) Acquaint themselves with the guidelines printed in cheque books regarding the
drawing and crossing- of cheques; and
iii) Ensure that the correct number of leaves are contained in the cheque books
when collected.
CREDIT FACILITIES:
When considering applications for credit, banks will have regard to purpose for
borrowing, the applicants’ character and credit worthiness, their ability to repay
borrowing and to pay interest and charges, and any security offered.
31

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DEBT COLLECTION PRACTICES:
When dealing with customers in default, banks will ensure that fair debt
collection practices are observed.
CONFIDENTIALITY:
With the following exceptions, banks will at all times observe a strict duty
of confidentiality regarding customer information:
i) Where the customer requests or consents to disclosure.
ii) Where the bank is compelled to disclose information by Law.
iii) Where, in protecting the interest of Banks, or where there is a duty to
the public to do so, information is given, for example:
a. in response to status enquiries from other banks;
b. to surety, guarantor or cessionary; and
c. when taking steps to recover debts.
iv) Where information is given within a banking group in order to maintain
existing, and establishing future relationships with customers.
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OF BANKING &
FINANCIAL SERVICES
UIBFS
COMPLAINTS BY CUSTOMERS:
(i) Every Bank will establish adequate procedures’- for handling of customers’
complaints
(ii) At the time of opening an, account, customers should be made aware of the
complaints handling procedure.
(iii) Should a customer or any, aggrieved party have any cause to complain about
Bank services, details in the first instance should be made in writing to the Chief
Executive of the bank concerned. Should this procedure not satisfy the matter, the
complainant/ aggrieved party has a right to forward the complaint in writing to the
Uganda Bankers’ Association through the current Chairman, c/o the Executive
Secretary who in turn will refer it to a UBA Sub select Committee.
(iv) The Sub Committee will be composed of UBA representatives not normally
exceeding three but excluding the bank(s) concerned plus one member from
either a legal profession or a recognized Auditor or both as may be appropriate at
the ‘Sole option of UBA. The Committee will sit from time to time and work out a
fair assessment, which will be made known to all the parties concerned.
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SAFETY AT BANK PREMISES
Banks will take all reasonable steps to protect their customers and the public
whilst in bank premises.
MARKETING OF BANKING SERVICES
Banks will compete for business based entirely on merit and, in marketing their
services, will act responsibly and prudently and ensure that advertisements are
fair and reasonable, do not contain misleading information and do not make
negative inference or reference to other banks in their promotional campaigns.
COMMUNITIES
Banks will play a role of fostering social and environmental needs.
UBA STATEMENT AGAINST MONEY LAUNDERING
Uganda Bankers’ Association is committed to fighting money laundering and
complying fully with the letter and spirit of money laundering laws in all parts of
the world and guiding regulations as established by regulatory authorities from
time to time. All Bank employees will accept accountability and responsibility for
observing these laws and policies.
Any instances of suspicious transactions will be reported to the appropriate
authorities. Any instances of suspicious transactions will be reported to the
appropriate authorities
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OF BANKING &
FINANCIAL SERVICES
UIBFS
END
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