South Africa is at a tipping point of next-generation payments and now more than ever, the regulator and banks need to work together to modernise the ecosystem and drive digital payments adoption.
South Africa’s payments system is one of the most advanced globally, but payments innovation has slowed somewhat over the past four to five years, as highlighted at this year’s Open Payments Conference. Consumers may not have been fully aware of this slowdown, however, the global demand for instant payments is growing and the South African Reserve Bank (SARB) is increasingly focused on accelerating payments modernisation efforts to promote financial inclusion.
A key project of the SARB’s Payments Ecosystem Modernisation (PEM) programme is the establishment of a Public Payments Utility (PPU), an instant payments system that, like any infrastructure such as transport or healthcare, serves the public in the business of moving money. To achieve this, the regulator cannot act alone. Collaboration with the private sector is necessary to drive the adoption of instant payments methods. However, this introduces several challenges and roadblocks that may slow progress. Let’s consider three.
The regulator's primary goal is to ensure the reliability and safety of the payments system. This naturally leads to a conservative approach, carefully managing risks that could undermine the system’s integrity. However, this doesn't mean the regulator intends to move slowly—improving financial inclusion is urgent, as it’s key to enhancing the economic prospects of many South Africans. So, what could cause delays?
Incumbents may be hesitant to move forward quickly after already investing heavily in similar solutions. Many have built systems around real-time clearing (RTC) and the rapid payments programme’s (RPP) PayShap. Justifying another investment in the proposed PPU, which aims to achieve similar goals, might be challenging for stakeholders.
A compromise could be to leverage existing infrastructure, like PayShap, as the foundation of the PPU. This approach would allow banks with RPP investments to implement the public utility more easily, helping the regulator move faster with a market-tested solution.
Is the regulator a policeman or a fire marshal? Both aim to protect the safety of the citizens in their care, but they exercise their authority in very different ways.
While a policeman reacts to events that have already occurred, a regulator is more like a fire marshal who works to prevent fires within their jurisdiction. In this analogy, each building represents a bank or fintech company that must comply with fire safety standards to avoid catastrophic fires that could spread to other buildings. To ensure this, the regulator periodically reviews these service providers and their safety measures to identify any gaps that might pose risks to consumers.
The SARB’s goal is to provide customers with more services at a better price but they also understand that trust in their ability to keep the ecosystem safe is their most valuable asset. This perspective places the regulator in a stronger position to develop frameworks that promote competition and security in the payments system.
“Trust is the only currency that counts, especially in payments” - Industry leader, The 2024 Open Payments Conference
The most sensitive point of tension in public-private collaboration lies in financial interests. Unlike private entities, the regulator isn't driven by profit. The PPU, like similar systems in India and Brazil, aims to offer instant payments that are free for consumers and low cost to merchants. This reduction in fees means banks will need to rethink their business models as competition for revenue increases.
To stay competitive banks should focus on early innovation and edge use cases. By investing in products like Request to Pay (RTP) or QR code payments for retailers, they signal readiness to compete in a highly competitive payments landscape and future-proof themselves for the evolution of South African payments.
Electrum’s local expertise can help your bank take its payments solutions to the next level. Contact us to explore how we can get you ready for next-generation payments.