1.1 Background
Ensuring the smooth functioning of payment systems and preserving financial stability while promoting the efficiency of payment methods and systems, thus contributing to the optimal allocation of resources in the economy, are among central banks’ primary responsibilities. Gaining a better understanding of how to make retail payment instruments cost efficient is of interest not only to central banks, but also to commercial banks, retailers, companies and the general public.
Cheques represent a significant segment of payment instruments worldwide. In Zambia, the issuing of cheques as the most common method of payment for business transactions has continued to increase from 1999 to date. The payment systems are characterised by the presence of a large number of paper based transactions, with cheques constituting more than 80% in terms of volume.
The clearing process for cheques is more expensive than other methods of payment which are cleared electronically, such as credit cards and Internet banking. The main reason is that cheque clearing requires banks to physically present cheques unless legal agreements are obtained to clear them electronically.

In addition, cheque clearing is a highly fraud prone operation as such it needs a reduction of operational risks as well as reduced time in clearing period so as to give better value to the customer. Prior to implementing the new CTS solution, cheque clearing between banks in Zambia involved the physical transfer of paper cheque together with the electronic match file to the ZECH. This system often took three to ten days for a customer to be given value, especially for bank branches located in remote part of the country. This system was prune to error, fraud and inefficiency which exposed the participating banks to a much greater element