Annual reports from the Reserve Bank and the Payments Association of SA provide updates on a series of reforms to SA’s payments system that will help to make banking more competitive and open to all.
Cash still looms large in SA’s economy, and while a high proportion of SA adults have bank accounts, especially compared with most other emerging market and developing economies, that doesn’t necessarily mean they can transact easily and cheaply, in real time. That constrains small businesses and weighs on poor consumers.
In the Bank’s annual report governor Lesetja Kganyago says that various emerging market central banks, such as India’s and Brazil’s, have made rapid progress in developing fast, affordable, accessible and safe digital payments at the retail level. This has provided citizens with an attractive alternative to cash, says the governor.
SA wants to head in a similar direction. And the Bank’s efforts in the digital payments area complement and support the government’s plans to develop a digital identity system and digital public infrastructure that will enable better service delivery for all.
One area in which the Bank’s reforms should show results in the near future is in opening access to the National Payments System (NPS) for nonbanks. The Bank regulates and oversees SA’s payments system, working with commercial banks through the Payments Association. The only entities that can clear and settle payments in the economy are the members of the NPS.
Historically that was open only to a limited number of “clearing” banks, including all the large retail banks. Nonbanks, including mobile phone companies and fintechs, have increasingly moved into mobile money and payments in recent years but they have had to do their clearing and settlement via the big banks that are NPS members. That tends to raise costs for their customers and hampers innovation and access to financial services and competition in the sector.
The integrity and stability of the payments system obviously must be carefully guarded and SA has long had a world-class system. But it is time to update the regulatory framework to reflect new realities — as the Bank is doing with regulatory reforms so that payment activities — such as holding cash balances in an e-wallet — will not require a banking licence.
The Bank says in its annual report it will enable greater access to the NPS through an Exemption Notice to the Banks Act and the establishment of a regulatory framework for nonbanks by December 2025, when it will also table amendments to the NPS Act that it hopes will be enacted and promulgated next year.
This is welcome and we can expect the Bank will go about broadening access in its usual cautious manner. But that is a small part of a much bigger initiative led by the Bank to modernise the payments “ecosystem” as a whole and bring it in line with the global best practice.
The Bank wants to establish a new National Payments Utility to take this forward and seeks to do this via the existing BankServ payments network, which is owned by the big commercial banks. It is negotiating with BankServAfrica and its shareholders to acquire 50% of BankServ, which it says would “enable the development of digital infrastructure that supports new participants and enhances payment security”.
Underlying all of that are moves by the Bank to develop a “robust” digital financial identity system for all adult South Africans that would streamline verification, enhance security and combat fraud.
That puts some interesting context to the controversy around home affairs minister Leon Schreiber’s decision to hike the rates the banks pay to verify clients on the less than efficient home affairs system. Home affairs has been remiss in leaving those rates at far below cost for at least 15 years.
It is a bit of a shock to the system to do so all in one go now, with banks such as TymeBank particularly hard hit. In the longer term, digital financial IDs, as well as the digital ID system that government itself is promising, will surely help to streamline all this and make life easier for businesses and consumers.
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