The South African Reserve Bank (SARB) is seeing increasing adoption of crypto-currencies and artificial intelligence (AI) in the country’s payments landscape.
This is according to Lyle Horsley, head of fintech at SARB, who shared insights during a recent interview with ITWeb TV.
Horsley described South Africa as having a “dynamic and vibrant” fintech ecosystem and said payments remain a central area of innovation for the central bank.
“Through some of the regulatory reforms that the SARB is driving, we are going to continue to see some of these payments innovations playing out.”
She elaborated on how payment technologies often act as a foundation for broader financial innovation.
“We know that payments are often gateways to other kinds of innovations. Typically, it starts with how to enable people to make payments quicker, more conveniently and cheaper, whether through something like a mobile wallet and then it goes into other kinds of services, such as lending or investment services.”
Horsley also noted the growing uptake of crypto assets in the local market and their expanding use cases.
“Recently, crypto assets have become a regulated product in South Africa, and we’ve seen our regulator has licensed around 240 crypto firms.”
Risk versus reward
Many South Africans are using crypto primarily as a store of value for investment purposes, she pointed out.
“The position that we have taken as SARB is to bring crypto assets within the regulatory fold based on the risks that we see. With crypto assets, there are various risks, so the regulatory action that has been taken is to address those risks, whether it’s from an anti-money-laundering perspective, to protect consumers, or cross-border perspective.
“I know there will be a push to say crypto is the new kind of money, but I do think the money that the central banks issue will remain relevant…and what we are seeing is that these things [crypto and fiat] are co-existing,” Horsley said.
SARB is also exploring central bank digital currencies, such as a digital rand for use in retail payments or by small businesses, she added.
“That’s more of a retail use case. You can also think of a form of central bank money that is similar to what exists today in the form of a settlement system where it’s used to settle financial obligations between financial institutions. That’s a wholesale central bank digital currency, and we have looked at both these two things.
“We’ve looked at it through a retail feasibility study through Project Khokha and Project Khokha 2. From a retail perspective, our research is still ongoing and we will be in a position to articulate our views in the future around whether we see a role for central bank digital currency to be used as a form of an everyday payment method.”
Project Khokha is a proof of concept developed by SARB to simulate a real-world trial of a distributed ledger technology-based wholesale payment system.
“Coming out of Project Khokha 2, there were many insights that we gained from that and many areas of work where we have identified to do some additional research and engagements with the industry.”
Horsley also highlighted the fast-moving nature of fintech innovation as a key regulatory challenge.
“In some respects, regulation will almost follow the innovation. So based on what will be seeing, you have to evaluate what are the opportunities and the risks, to see how to respond to those kinds of innovations. But with South Africa, what we’ve done well is we’ve set up structures that enable us to get closer to the fintechs and innovations through things like regulatory sandbox under our Intergovernmental Fintech Working Group.”
Creating boundaries
She explained that the sandbox provides a space where innovators can test their products in a controlled live environment, with regulators overseeing the parameters.
“Regulators will be able to see in a practical way what the implications of the innovation are and, hopefully, make more informed policy and regulatory decisions from there.
“We have something called the Regulatory Guidance Unit, where fintechs can approach regulators with questions about how the innovation fits within the regulatory framework.
“AI use and adoption is also growing both in terms of bringing efficiencies to the operational architectures of firms and in terms of front-end applications that firms are deploying to enhance customer servicing.”
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