Central Bank of Kuwait: The Development of CBK’s Payment Systems

Before implementing Kuwait's Automated Settlement System for Inter-Participant Payments (KASSIP) and Kuwait Electronic Cheque Clearing System (KECCS) in 2015, CBK and local banks have relied on cheques and paper confirmations (letters and Telex) before Society for Worldwide Interbank Financial Telecommunication (SWIFT) System was deployed. The interbank paper cheque offsetting and processing was done manually by exchanging mails via CBK.

In 1960, Kuwait Currency Board was established pursuant to the Amiri Decree No. 41 of 1960 in preparation for the issuance of the Kuwaiti Dinar, which was put into circulation in April 1961.
Kuwait Currency Board was then replaced by the Central Bank of Kuwait that was established in on 30 June 1968 by virtue of the Law No. 32 of 1968 concerning Currency, the Central Bank of Kuwait and the Regulation of Banking, with the growth of the Kuwaiti banking sector in 1960s, as demonstrated by the increase of the number of banks and volume of their activities.
In 1979, the State of Kuwait’s first Automated Teller Machine (ATM) was put in use and the first plastic bank card was issued to complement the financial technology infrastructure and provide easier banking services easier for customers.
In 1992, the Shared Electronic Banking Company (KNET) was established, in collaboration with local banks, to provide a wide range of banking payment services using an advanced and secure network as per the international standards applicable at that time.
In 1993, SWIFT was implemented in the State of Kuwait to facilitate transactions, money transfer and interbank communications in a safe and effective manner.
In 1994, the Point of Sale (POS) system was introduced in the State of Kuwait to facilitate processing of payments and electronic transactions for customers using credit or debit cards, and commercial transactions improving efficiency thereof.
In 1997, the Gulf Cooperation Council Network (GCC-Net) was launched to connect ATMs across the member states, aiming to give GCC nationals the benefit of this service, as well as the parties participating in the network.
In 1998, the first e-banking service was introduced via Internet (Internet Banking) to give customers easier access to their accounts, and enable them to conduct transactions and manage their financials through Internet platforms.
In 2004, the banking sector witnessed a qualitative shift in the development of payment systems when Kuwait's Automated Settlement System for Inter-Participant Payments (KASSIP) went live. KASSIP was implemented as per the Principles for Financial Market Infrastructures (PFMIs) issued by the Bank for International Settlements (BIS), and is considered as an up-to-date Real-Time Gross Settlement (RTGS) payments' system. The system enables the immediate and final settlement of payments between participants through SWIFT, with the participation of Kuwaiti local banks and CBK as a participant and system operator. The regulatory guidelines and operational procedures for KASSIP were issued in 2004 and updated in 2010.
CBK participated in developing the unified treasury account system for the Ministry of Finance to manage cash in public finances. In collaboration with the Ministry of Finance, the system was implemented in stages starting in 2009, to achieve a qualitative shift in cash liquidity management of the Ministry of Finance in order to finance expenditures and accelerate payment processes to ministries and government entities in accordance with the financial authorization granted by the Ministry of Finance to entities subject to the unified treasury account system.
In 2010, the principles of payment for Europay, Mastercard, and Visa chip cards (EMV Chips) were applied in various payment channels, through POS that support EMV Chips, and ATMs which supports the authentication and verification mechanism for transactions made through direct debit cards and credit cards.
In 2010, the first mobile banking service was provided.
In 2011, the International Bank Account Number (IBAN) system was implemented in the State of Kuwait, which achieves international unification in terms of the structure of bank accounts, enabling banks’ technical systems to achieve speed, efficiency and accuracy when carrying out cash transfers.
In 2014, the Gulf POS service GCC-NET was launched for debit cards issued by banks operating in the GCC countries, between the State of Kuwait, the Kingdom of Bahrain and the State of Qatar. The service provides a POS network and ATMs without intermediaries, to ensure the speed of transactions and the accuracy of their settlement between banks operating under technical and legal provisions, rules and controls approved by the monetary institutions and central banks of the GCC countries.
In 2015, CBK launched KECCS, which is a system for clearing KWD written cheques electronically by converting the original cheque to the electronic format for the electronic clearing process to collect the value of the cheque for the beneficiary’s account and deposit it in the customer’s account within the same day instead of the previous manual clearing system which took three days. The system was implemented in accordance with international practices that conform sound and secure standards. CBK also carries out, directly, debit and credit transactions on accounts of participants of the (KASSIP) system, according to net settlement position within the KECCS system, and also monitors all participant bodies and their compliance with the rules and regulations governing the system. Furthermore, regulatory guidelines and operational procedures for KECCS were also issued in 2015.
In 2017, Near Field Communication (NFC) technology was implemented in the State of Kuwait, allowing POS to accept contactless payments using cards that support this technology.
In 2018, CBK’s Board of Directors issued instructions regulating e payment of funds directed towards providers of e-payment and settlement services and systems. CBK was keen to provide supervisory and regulatory frameworks to benefit from the advantages provided by these instructions within the framework of Law No. 20 of 2014 regarding electronic transactions, which gave CBK the authority of oversight and regulation of the electronic payments’ activities in the State of Kuwait.
In 2018, the regulatory sandbox framework was issued to support and regulate innovative initiatives in the field of financial technologies in a way that serves the Kuwaiti economy interest. New organizational units have been created at CBK for financial technologies and supervision of e-payments systems and technological means used in providing banking services and e payment and settlement systems.
In 2019, the Electronic Banking Services System (EBSS) was launched. This system seeks to improve the banking services provided to ministries and government entities by implementing cash transfers for government entities in KWD automatically and in real time, in a way that increases efficiency, reduces operational expenses, and saves time and effort for all users of payment systems. The regulatory guidelines and operational procedures for the e-banking system were also issued.
In 2020, the cybersecurity’s strategic framework for the banking sector in the State of Kuwait was completed, as it enhances the protection and information security measures for the banking sector in light of the rapid technical development and continuous endeavor to benefit from the advantages of technology in the banking and financial sector.
In 2020, CBK announced linking POS devices in both the State of Kuwait and Saudi Arabia through GCC-NET, allowing bank customers to pay for their purchases in the two countries directly through GCC-NET. It’s worth noting that the POS service had been linked previously with the Kingdom of Bahrain, the Sultanate of Oman, and the State of Qatar in 2014.
In 2021, CBK launched the newly updated KASSIP changing the system’s working hours, as the participating banks are connected through CBK-Net, which is a large-scale secure network owned by CBK allowing the exchange of payment messages in accordance with the international standard (ISO20022), and encrypted with the latest security technologies and soundness standards. It also comes with doubled efficiency in terms of number of transactions and speed of transaction execution. CBK is keen on following the Principles for Financial Market Infrastructures (PFMIs) issued by the Bank for International Settlements (BIS).
In 2022, CBK announced the start of implementing the GCC Cross-border Payment System (AFAQ) in the State of Kuwait by providing a real-time settlement system between GCC central banks, supporting dealing in the local GCC currencies, facilitating clearing and financial settlements and ensuring prompt processing of cash transfers.
In that same year, CBK enabled government entities to use EBSS for the foreign currency to conduct cash transfers and receive a response automatically without referring to CBK. Regulatory guidelines for the e-banking services system and operational procedures were also issued.
In 2023, within the framework of continuous pursuit and development, and within CBK’s vision in developing the payment systems, CBK extended the working hours of KASSIP and KECCS by an additional hour at the end of each working day (in May 2023). In the same year (September 2023), CBK also extended a second additional extension of the operating hours of the systems with the aim of developing banking services in the country.
In 2023, the instructions for regulating e-money payment issued in 2018 were updated to provide for requirements that must be met by existing and emerging financial institutions willing to practice e-payment or e-money activity, or operate e-payment systems according to five types of licenses commensurate with the size and nature of the activity. The new instructions also included the supervisory controls the said institutions must adhere to in practicing the activity in the areas of corporate governance, the framework of risk management, Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT), cybersecurity, business continuity, and customer protection, in order to enhance the soundness and stability of the payment systems in the State of Kuwait. The new instructions shall pave the way for providing Buy Now Pay Later (BNPL) postpaid services within a supervisory and regulatory framework that defines the necessary measures to protect customers’ rights.
CBK is developing the Kuwait National Payments System (KNPS) in its second version, which includes a package of projects that will contribute significantly to the development of payment system services in the State of Kuwait in accordance with the highest international standards.