While regulation and innovation are not often considered natural allies, they need each other in the payments ecosystem, and striking the right balance is key.
So said South African Reserve Bank (SARB) governor Lesetja Kganyago, speaking yesterday at the second annual MTN Group Fintech Summit, in Johannesburg.
Kganyago delivered his keynote under the theme: “The future of Africa’s digital economy”. He detailed challenges in modern payment systems, the continued use of cash over cards, regulation and trust, as well as refusal by some merchants to accept credit cards because of the associated fees.
The governor highlighted that payments innovation can scale sustainably only when there is trust.
This, he explained, means there needs to be clear, proportionate and risk-based rules that protect trust without becoming barriers to innovation or creating unnecessary burdens.
This is where the National Payment Systems Bill comes into focus, he noted.
Championed by the SARB, the Bill proposes expanding financial inclusion beyond traditional bank-sponsored channels by allowing non-bank payment service providers and fintech firms to directly participate in clearing and settlement.
The number of fintechs in South Africa has expanded to about 400 firms, he told attendees.
The forthcoming Bill, he pointed out, will modernise the statutory framework and provide a more durable legislative foundation for the payments ecosystem. “A key change is the move from an entity-based regulatory model, towards an activity-based regulatory framework.
“The principle is straightforward; similar payment activities should be subject to similar regulatory expectations, whether they are performed by a bank or a fintech. If it walks and quacks like a duck, it is a duck, and it should be treated as one.
“These basic principles support broader participation. New participants, however, will have to take on the core obligations that are the price of admission to the payment system, including governance, safeguarding of customer funds, operational resilience, anti-money-laundering controls and ongoing supervisory oversight.”
He added that he expects the industry to adhere to the rules “set for the game”, while stressing the importance of robust engagement with the Bill towards shaping the ecosystem.
Improving payments
According to the governor, modernising South Africa’s payments system means having money that merchants will be happier to accept.
As a result, payments modernisation is a strategic focus for the SARB, he noted, adding that it is one of the top three strategic objectives, alongside price and financial stability.
“As the custodian of the national payment system, we, in partnership with various stakeholders, have embarked on a fundamental upgrade of the country’s payment infrastructure. The SARB is not doing this alone; it is a team effort that includes incumbent firms and new entrants.”
Part of this modernisation has seen the creation of PayInc, the SARB’s newest subsidiary, he stated. “PayInc will be established as a national payment utility that is accessible to the various players who meet the rules of participation in the South African payment ecosystem.”
He added that fintech firms are already making important contributions.
“By modernising our payments platform, we are also building more complex payments. The silver coins of the 16th century represented a simple payment technology, a portable quantity of precious metal with a recognisable shape and design.
“Today, however, payments can begin on a mobile phone, rely on cloud infrastructure, and pass through several technology providers before being completed, which can take seconds.”
The governor warned that if South Africa’s digital payments gain a reputation for being clunky or unsafe, the country will not “reap” the rewards of payments modernisation.
He concluded that the payments space is one of the “most exciting” areas of South Africa’s economy. “Technology is changing fast, making better payments possible, faster, more affordable, safer and more inclusive. These payments can be a driver of growth, and the gains are within our grasp.
“Other countries are ahead of us. To catch up, we need the right mix of regulation and innovation. We can adopt new technologies from leading countries, but if trust is not there, they will not be used.
“But there is also an advantage in almost coming from behind on this, because it offers us an opportunity to leapfrog, because we then have fewer legacy systems to deal with.”
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