At the 3rd Open Payments Conference, a regulatory leader delivered a keynote on the future of South Africa's payments infrastructure. This blog highlights the key insights the industry needs to understand about the upcoming Public Payments Utility (PPU).
According to the South African Reserve Bank’s (SARB) 2023 Payments Study Report, 67% of the population has issues adopting electronic and digital payment methods. In addition, a third of the population is excluded from digital transformation due to a lack of infrastructure, poor internet connectivity, limited merchant support and high service costs.
After reviewing the current payments ecosystem, the SARB concluded that the existing system is neither inclusive nor accessible to all. To address these gaps and support the country’s social development goals, the SARB plans to implement South Africa’s first Public Payment Utility (PPU) as part of its strategy to create a more equitable and efficient payment system.
What is it?
The PPU is one of the several key initiatives of the Payments Ecosystem Modernisation (PEM) super-programme. This payments system will be owned and facilitated by the SARB with the goal of making instant payments accessible through a public infrastructure — similar to how transport, energy, and healthcare systems provide access to essential public services.
“Public transportation systems have the goal of moving people and goods securely from one place to another, the PPU is designed to move money securely and seamlessly through the economy.”
The SARB’s role as both regulator and operator of a PPU presents governance considerations. Balancing these responsibilities requires careful oversight to ensure that regulatory impartiality is maintained while operating the payment system efficiently. Clear governance structures and transparency are essential to ensure trust in the system, allowing the central bank to fulfil both roles effectively.
What role will it play?
The primary focus of the PPU will be on retail payments. According to the 2023 Payments Study Report, the largest payment categories by volume in South Africa are groceries, transport, and cellphone payments. The SARB aims to make these types of payments instant and more accessible through the following core principles:
Exist for the greater good
The utility must be as accessible as possible with minimal barriers to entry. Unlike commercial systems driven by profit, a public utility can implement infrastructures that come at little to no cost for both the consumer and the merchant.
Interoperability
To ensure simplicity and ease of use, the system should operate on a single set of standards, allowing consumers and merchants to access and accept various payment methods seamlessly. Focus will be on real-time payments and settlements to enable all participants to innovate on the instant payments rails.
Trust and stability
Trust is a cornerstone for encouraging digital transformation. As a public utility, the PPU must be the most reliable and secure payments platform, enabling users to move money freely and confidently. Trust will be built through transparency, education, clear regulations, and strong data privacy frameworks.
What are the challenges and benefits?
Several countries have successfully implemented public instant payment systems, with noteworthy examples from Brazil’s PIX and India’s Unified Payments Interface (UPI). While these systems offer substantial benefits, they also come with certain risks.
Benefits
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Challenges
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Enhanced financial inclusion
Unbanked, underbanked and undocumented foreign nationals can access low cost, instant digital payment services.
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Network effects and economies of scale
A unified payment system encourages positive network effects, lowering costs and increasing efficiency as more participants join.
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Improved accountability and transparency
Greater regulatory oversight can provide a more transparent and secure payment system.
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Foster competition and innovation
Allowing non-bank participants to engage directly in the system can drive competition and stimulate financial innovation.
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Natural monopoly and systemic risk
As a central part of the financial system, the PPU may create a natural monopoly, concentrating risk in a single infrastructure.
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Stability
The system must manage liquidity and high volumes, particularly during economic or financial stress.
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Offline transaction support
The system must account for areas with limited internet connectivity, enabling offline transactions where necessary.
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Duality of the Central Bank
The central bank acting as both the regulator and operator raises concerns about governance and conflicts of interest.
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Interchange fees remain a key concern for industry participants. Since the SARB will require private sector participation to drive adoption of the PPU, the framework will need to carefully consider how to set interchange fees in a way that incentivises private-sector involvement while maintaining accessibility for all users.
What’s next?
The Payments Ecosystem Modernisation programme is progressing steadily and the SARB is planning to roll out key pillar projects, including Digital Financial IDs (DFIDs), in the next two to three years. Additionally, the industry should also anticipate the PPU governance model in the next few months.
How are you preparing for the next generation of payments? Get in touch with our team to learn how our cloud-native technology can future-proof your payments business.
