In this rapidly changing environment, industry collaboration is pivotal to ensuring the evolution of a secure and convenient payments system.
The payments system of a country, and its payments clearing-house, are critical infrastructures for economic activity, and can be catalysts and enablers to economic growth. An efficient and appropriate NPS increases the ease of doing business and is indispensable to the functioning of the interbank, money, and capital markets.
Conversely, a weak payments system acts as a brake on the stability and developmental capacity of a national economy.
A rapidly evolving context
The world is changing around us, driven by mass social change and new technology with unknown potential. The digital economy of the 21st century will change the way payments happen.
A national clearing-house is shaped by social, economic, regulatory and technological trends. Some of the trends that are likely to impact the economies in which we operate over the next few years include:
- Globalisation: As the world becomes increasingly interconnected cross-border linkages in Africa are likely to increase.
- Inequality and inclusion: Rising income and wealth disparity is the social issue of our era. Economic networks will be put under increasing stress as they struggle to meet all needs.
- Digital interconnectedness: Symmetrical growth in connected entities means an explosion in digital activity, including payments.
- Digital capital: Data will be the strategic asset of the next era.
- Cybersecurity: Cybercrime is on the rise as economies are digitised.
- Digital identity: The digital world requires new ways of establishing an entity’s identity online.
- Renewal of infrastructure: Digital infrastructure must be modernised to unlock value.
Industry volatility, social and public-sector needs, the emergence of new financial participants and the already saturated technology environment all make it likely that the payments industry will need to look at how to modernise the payments system to respond effectively to future needs and demands. While these issues present significant risks, the process of modernising the payments system presents many opportunities.
Finding the right solution for South Africa
Designing a robust payments system to serve the current and future South African economy.
Payments systems between and within countries are complex and serve different agendas and business needs.
Automated payments infrastructure for cards and EFT was architected in the 80s and has retained its basic shape ever since. New networks and technologies have been added over the years to improve service, manage increased volume and add new value. These systems are plumbed into banks, service providers, merchants and other enterprises of all sizes throughout the South African economy. Given this complexity, infrastructure redesign is costly, complicated and contentious. As a result, restructuring only takes place every 20 to 30 years.
The time for a new South African design is now. Many countries are on this path, and there is much to learn from overseas examples. Without structural change South Africa risks falling behind. Therefore, we need to holistically consider technological, social and political factors to provide a robust payments system that will serve the current and future South African economy.
The payments community will debate the objectives and design of a new national payments infrastructure in the coming year. Some key issues have emerged from research thus far, including the need for financial inclusion, digital enablement and regional extensibility.
It seems clear that the new payments system will need to serve the economically disadvantaged. This should encourage formal economic participation of under-represented and excluded citizens while also meeting the needs of wealthier, established segments. This is one way to address the social challenges the country faces.
There is also a need to future-proof our payments infrastructure by providing the flexibility to meet future needs as technology evolves – including needs we cannot yet see.
Finally, the prosperity of South Africa is tied to the prosperity of our region and our continent. Anything we design now must allow for cross-border use and the free flow of digital commerce to uplift our own and surrounding economies.
Well-designed payments systems have the potential to reduce friction in commercial and consumer payments, indirectly supporting economic development and financial inclusion.
For the digital economy of the future, we need to start thinking creatively, applying an approach that is rigorous and inclusive for all.
Where we are going
Research and collaboration to streamline the payments industry.
To address the changing payments landscape, PASA and BankservAfrica jointly commissioned a research programme aimed at reviewing international modernisation efforts and identifying practices and techniques that were successful or have failed. The goal is to apply these learnings to the South African payments industry.
We see this research as the basis of an extensive industry conversation about the payments landscape and the opportunity for payments modernisation in support of broader South African economic goals. We aim to leverage this research to create a collaborative environment for the public and private sectors to find common ground and agree on common goals.
We look forward to working with the South African Reserve Bank, PASA, our mutual owners and other stakeholders on developing a shared consensus for action on a new payments infrastructure.
At BankservAfrica, we believe there’s no substitute for industry players doing it themselves together. Co-created networks are always better than government-built networks or compliance-driven outcomes.
Streamlining the payments industry through a business-led process can be powerful and galvanising. It can radically reduce the cost base, while revolutionising the industry.