The South African Reserve Bank (SARB) is pioneering Africa’s adoption of the International Organisation for Standardisation (ISO) financial messaging standard ISO 20022.
It is expected to underpin all high-value payments in reserve currencies by 2025.
This, as the central bank announced it is remodelling the country’s payment ecosystem, necessitated by the rapid development of disruptive technology, evolving cyber threats, increased regulation and demands from customers for faster, more cost-effective payments.
The development comes on the back of a recent warning by the SARB that cyber crime and emerging technologies are growing threats to SA’s banking sector.
A recent study by the central bank shows a number of threats are increasing vulnerabilities in the banking sector, including internet and mobile banking platforms, which SARB says may be exploited to facilitate crime.
Age of transparency
Last week, the SARB announced the adoption of the ISO 20022 standard, saying it is expected to “improve compliance and transparency, increase efficiency and interoperability, enhance customer experience, and speed up payment systems harmonisation”.
The SARB owns and operates the South African Multiple Option Settlement (SAMOS) system, which facilitates the settlement of domestic individual high-value payment transactions, retail transaction batches, and bond and equity market settlement obligations.
The automated system settles obligations in real-time, or in a delayed settlement arrangement.
In a statement, the bank says the move to the ISO 20022 format is critical to reforming various pillars of the country’s payment system, including the electronic funds transfer (EFT) debit system, EFT credit system and SAMOS system.
“The EFT debit system has already embedded the ISO 20022 format with the introduction of the DebiCheck service that enables consumers to authenticate early debit orders attached to their accounts.”
The migration, the SARB says, will also pave the way for faster payments through the introduction of the Rapid Payments Programme (RPP), which is expected to be launched in 2023.
“The RPP, to be launched under the brand PayShap, is an industry-led initiative under the leadership of BankservAfrica and the Payments Association of South Africa.
“When rolled out, the RPP will offer a cost-effective instant payment service across banks, a proxy service to embed user banking details, a request to pay service, as well as support for several known retail payment use cases.”
The central bank says the move to ISO 20022 – being driven through the Society for Worldwide Interbank Financial Telecommunication (SWIFT) – will introduce a harmonised message exchange mechanism for payments across the globe, “allowing for richer, better-quality data in payment processing and settlements”.
SWIFT has set a 2025 deadline by which all users in its network must have transitioned to this messaging standard.
More granular data
At the heart of this change, the SARB notes, is the switch from the legacy proprietary messaging format known as SWIFT Message Type (SWIFT MT) to the ISO 20022 Extensible Markup Language (XML).
The bank explains: “The adoption of XML – a language and file format for storing, transmitting and reconstructing information – will allow for the exchange of richer, more granular data, including the details of the remittance, the purpose of the payment, the original source and ultimate beneficiary, along with any relevant supplementary data.
“Though the ISO 20022 migration represents a step change in the global payments landscape, its adoption in South Africa is a pivotal marker in the country’s efforts to renew and modernise its domestic payments infrastructure, including our domestic real-time gross settlement system (RTGS) – the South African Multiple Option Settlement system.”
In addition, the SARB says, having guided the domestic ISO 20022 adoption, the central bank will now be supporting this change through the Southern African Development Community (SADC), as the operator of the SADC-RTGS.
“The switchover for participants in the SADC-RTGS is expected to be completed by October 2023.
“These various modernisation efforts are rooted in the National Payment System Framework and Strategy or NPS Vision 2025.
“NPS Vision 2025 aims to improve the safety, efficiency and accessibility of the national payment system and outlines nine goals that will advance and future-proof the domestic ecosystem.
“These goals include promoting competition and innovation, financial inclusion, regional integration, cost-effectiveness, interoperability and financial stability and security.”