The SA Reserve Bank is pushing for an overhaul of the country’s payments regime with non-banks set to enter the clearing and settlement system in a move that will see the hegemony of the traditional banks further challenged by fintechs.
For this to happen, the regulations governing SA’s payments landscape will need to be changed, a task that Tim Masela, head of the SA Reserve Bank’s national payment system department, said the Bank was engaged in.
This is as the Bank, which is the custodian of the national payments system, said managing cash in the system costs the economy about R30bn annually — nearly what the state pays in social relief of distress grants.
Masela said managing cash in the system is costly, and funds saved through digitisation of payments can be redirected towards investment in infrastructure development and crucial social programmes.
To achieve this, he said it was important to enable non-banks to enter the payment space, saying this presents opportunities to enhance competition and drive financial inclusion.
He added that consumers would “benefit immensely” if they were provided with alternative stores of value, such as a digital wallet, to enable them to transact.
The Bank believes that fintechs and other non-banks have the potential to introduce compelling digital payment solutions that would offer consumers greater choice.
“A key barrier for non-banks to hold stores of value that would enable them to effectively offer transactional services, is the deposit taking provision in the Banks Act, as the act currently restricts the holding of a store of value to banks,” he said in remarks published in the Payments Association of SA’s annual report.
Spur development
“We are pleased that we are advancing in bringing reforms in this area and report that the Bank is actively exploring ways to open access to the payment system and is pursuing regulatory changes that would allow non-banks to enter clearing and settlement,” he said.
“At the same time, it is crucial that non-banks meet relevant criteria that include, among others, anti-money laundering requirements to maintain financial integrity of the system. Care should also be taken to ensure that as expansion of service provision in this area is facilitated, interoperability between banks and non-banks is entrenched to avoid fragmentation.”
Under the laws, non-clearing financial services companies participate in the national payments system indirectly through sponsorship agreements with other clearing banks. Without a sponsor it is practically impossible for non-clearing groups to do business and transact in the country.
The SA banking sector is the largest in Africa. While SA has several banking groups, and a plethora of fintech players, the sector is highly concentrated, with the market share of the top five banks (in terms of banking sector assets) at about 90%.
The sector has over the past decade seen several digital-only banks enter the space, including TymeBank, Discovery Bank and Bank Zero.
Old Mutual’s digital banking proposition, OM Bank is set to debut before the end of the year after getting the necessary regulatory proposals. The Patrice Motsepe-backed TymeBank has quickly grown to 11-million customers in five years.
Masela said the ultimate goal is to have a payments ecosystem that is innovative to spur development of convenient and cost-effective offerings.
“By enabling broader participation in the payment system, we can further unlock new opportunities to enhance financial inclusion and modernise SA’s digital payments landscape.”
The Bank is purchasing 50% of the shares of BankservAfrica, which will become the National Payments Unity (NPU).
BankservAfrica is an automated clearing house that provides interbank switching and clearing services to SA’s banking sector. The 50% stake in BankservAfrica which the Bank is looking to buy is owned by the banks.
The NPU is expected to enable instant payments as a public service to support SA’s social development goals.
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