The SA Reserve Bank is working on a draft law to revamp the national payments ecosystem, setting the stage for the biggest payments reforms in a generation and a potential 0.5% in GDP growth.
Under the Bank’s 2030 strategy, which elevates payments modernisation to a core strategic pillar, alongside price and financial stability, it estimates that faster, cheaper digital payments could trim the economy’s R30bn annual cash-management cost and widen access for underserved households and businesses.
The Bank is setting its sights on propelling the country’s national payment system (NPS) into the big-league club of emerging markets, shunting paper cash on the sidelines along the way. Through its payments ecosystem modernisation (PEM) programme, the bank has ploughed “significant” capital into next-generation rails, real-time settlements and digital wallets.
“Historically focused on price stability and financial stability, the Reserve Bank has streamlined its strategic focus areas to include payment system development as one of its top priorities. This elevation underscores the recognition of the macro-critical nature of payments modernisation to SA’s economic trajectory,” a paper released by the Bank states.
“PEM’s success will be premised on effective execution and defined by the adoption of new payment solutions. To achieve this, the Bank will take a hands-on role in driving the payments ecosystem modernisation effort.”
The Bank said a higher equilibrium implied greater adoption of simple, affordable, secure, faster payments with reduced co-ordination frictions.
Regulatory reforms
Achieving this would require regulatory reforms, such as an activity-based model allowing non-banks to compete in e-money issuance and payment acceptance.
“Widespread adoption has the potential to increase GDP by 0.5% which could particularly benefit less-well-off South Africans.”
The Bank is drawing lessons from fellow Brics countries in modernising its payments system, particularly Brazil and India.
The Bank pointed to India’s Unified Payments Interface (UPI) as one example of a recent reform that has yielded positive results. The UPI provides a real-time, interoperable payment platform that supports multiple use cases, including peer-to-peer transfers, bill payments and merchant transactions.
The paper said the UPI in 2023/24 processed 131-billion transactions, contributing to 80% of the retail payments across India.
Reserve Bank governor Lesetja Kganyago, in the foreword of the report, said specialised teams comprising senior industry representatives had been tasked with designing initial products, focusing on rapid concept development.
‘Inclusive and accessible’
“I am inspired by what is happening globally as central banks take centre stage in shaping the future of payments. It is evident that digital transformation should not be a privilege reserved for a few — it must be inclusive and accessible to all. SA must rise to this challenge, and I firmly believe it can be done,” Kganyago said
By embracing models such as India’s UPI and Brazil’s Pix, and inviting non-banks into clearing and settlement, the reforms could undercut the big five banks’ near monopoly on the systems shops use to take card payments.
“Through the PEM programme, we are working towards a payment system that achieves a new balance — one where competition thrives, a national payments utility is developed, and cash is no longer the only option for many. It is an ambitious vision, I admit, but one that is necessary for the kind of progress we want to achieve.”
Business Day reported in June that the 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 traditional banks further challenged by fintechs.
This is as the Bank, 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.
The paper provided further insights into the Bank’s thinking on opening up the NPS.
“Non-banks will be able to directly participate in payment activities such as issuing e-money and providing acquiring services, and have direct access to clearing and settlement systems.
“For instance, a pre-funded settlement model will enable direct access to a designated settlement system. Non-banks and banks have been calling for a level playing field, which the Bank will address through an exemption notice, licensing framework and amendments to the forthcoming NPS Bill. Entry to the licensing process will require robust but fair regulation and supervision.”
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