The South African National Payment System in context

Walter Volker

CEO

Payments Association of South Africa (PASA)

Investment Symposium

Wits Business School

24 October 2017

Agenda

Section 1 The National Payment System and its role players Section 2 Payment system size and trends Section 3 Payments and the economy Section 4 Forces changing payments Section 5 Opportunity or disruption? Section 6 Q & A

2

Section 1 The National Payment System and its role players

What is the NPS?

4

Formal NPS

• Consisting of open, interoperable payment systems which are cleared through regulated clearing participants and settled in central bank money

• About 19 payment systems

• Total settlement value of over R118.1 trillion per annum

Informal NPS

• Consisting of numerous “closed loop”, proprietary payment systems

ALL payment systems in South Africa

5

Members 33

PSOs, [VALUE]

SOs, 95

TPPPs 195

Banks PSO's SO's TPPP's

Mission

To manage and develop the NPS and facilitate

integration with international payments

PASA Mandate

PASA (established in 1996 and formally recognised in 1999) fulfils a delegated regulatory role…

The South African Reserve Bank derives its mandate and power to establish, conduct, monitor, regulate and supervise payment, clearing or settlement systems from section 10(1)(c) the South African Reserve Bank, 1989 (Act 90 of 1989) (SARB Act).

• Maintain safe and efficient NPS “infrastructure”

• Stimulate, encourage & facilitate the development of new infrastructure”

• Protect a critical ‘common’ public asset

• Currently only the banks and designated clearing system participants are members of PASA. PSO’s and SO’s are authorised by PASA and TPPP’s are registered with PASA

PASA and the South African Payments landscape

Customers

SO

PSO

Retail Corporate

Third Party Payment Providers (TPPPs) Banks and non-Banks

Payment Service Providers Banks or non-Banks

Clearing Participants Banks or Designated Clearing Participants

Settlement Participants

RTGS (SAMOS)

SO

Payment Service Providers

Payment Enablers/ Infrastructure Providers

SO

Intensity of regulation increases from outer to inner core

The “Onion Ring” Stakeholders in the NPS

Section 2 Payment system size and trends

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SA Payments Landscape - Wholesale vs Retail Monthly settlement values through SAMOS

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Settlement values - 10 year history

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SA Payments Landscape - Wholesale vs Retail Annual settlement values through SAMOS

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As at September each year

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[CATEGORY NAME]

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91% Retail High Value

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SA Payments Landscape 2017

R118.1 Trillion settled through RTGS annually

The NPS

Retail Volumes

Retail Value

RTC 0.4%

EFT Credit 14.5%

EFT Debit 11.5%

AEDO 0.4%

NAEDO 4.3%

ATM 12.5% Cheque

0.2%

Card 56.2%

RTC 2.4%

EFT Debit 7.0%

AEDO 1.3%

EFT Credit 79.0%

NAEDO 0.1%

ATM 1.1%

Cheque 1.7%

Card 7.3%

Annual Retail

Volumes

Annual Retail Values

95% Settled during Day 5% Settled during Night window

11

SA Payments Landscape Growth in payments streams – 2010 to 2016

EFT Credits

RTC

407m

516m R8.5 Trillion

R4.8 Trillion

Volume Value

3m

15m R255.2bn

R38.9bn

42m

7m R139.2bn

R938.6bn

Cheques

EFT Debits

NAEDO

329m

410m R752.9bn

R565.9bn

Volume Value

102m

153m R118.9bn

R52.4bn

AEDO 8m

13m R15.6bn

R6.3bn

Cards

763m

2bn R784bn

R305bn

ATMs

302m

446m R181.9bn

R91.2bn

CAGR 4.1%

CAGR 30.9%

CAGR -22.2%

CAGR 14.8%

CAGR 3.2%

CAGR 5.9%

CAGR 7.6%

CAGR 5.8%

Section 3 Payments and the economy

The NPS as an enabler of economic activity

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FIRMS ( SUPPLY GOOD & SERVICES) HOUSEHOLDS - CONSUMERS

GOVERNMENT

GLOBAL MARKETS

The NPS as an enabler of economic activity cont.

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Properly functioning payment systems serve to “oil the wheels” of the economy: • Enhance stability of the financial system,

• Reduce transaction costs in the economy,

• Promote efficient use of financial resources,

• Improve financial market liquidity and the

velocity of money, and

• Facilitate the conduct of monetary policy.

Section 4 Forces changing payments

Forces changing payments

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Digitisation

Commoditisation

Fragmentation

Change in Regulation

Competition

Digitisation Growing number of form factors

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Digitisation cont.

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• Proliferation of new devices and channel options • Growing number of digital payment solutions

Competition

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2008 < 10 SOs and TPPPs < 23 Members

2013 100 SOs & TPPPs 25 Members

2017 33 Members 95 SOs 195 TPPPs

• New entrants • Growing non-bank participants • Fragmentation of the value chain

Regulation Increased regulation

20

FSR Bill

Cybercrimes/security Bill

POPIA

FATF Directive

COFI Bill

AC Directive

NPS Act

CMA Directive

Bill passed by National Assembly on 22 June 2017.

Awaiting signature by the President before becoming an Act.

Bill was published on 3 July 2017 for comment.

Comment is being collated by PASA for submission on 10 August.

Information Regulator has published its 5 year strategic plan.

Priorities are Regulations, Codes, stakeholder engagement, analysis of legislation impacting on its operating environment.

FIC Ammendment Act 1 of 2017 - Risk based approach

Main focus – Compliance Recommendation 16

FICA focus – customer due diligence

Managing i.t.o. FIC Act

PASA EXO is part of a workgroup established by NT considering conduct issues.

Bill is expected in quarter 4 of 2017.

Directive was published on 23 June 2017.

‘Implementation plan’ discussed in the Directive is that as agreed with the SARB on 2016

Two members of PASA EXO are part of an Expert Group reviewing the NPS Act.

A draft policy document is being considered at present.

Published on 30 May 2017.

All cross border low value EFT credits to be passed through SADC RCSO by 1 July 2018

Regulation More inclusive regulatory framework

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• Banks • Designated non-banks

• PCH System Operators • System Operators • Third Party Payment Providers

• User Associations • Consumer Representative bodies

Tiered membership

Appropriate level of Regulation vs Risk

Fintech Open Banking

Payment Service Providers

Section 5 Opportunity or disruption?

Conclusions

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Unlikely to have fundamental disruption of the basic card or electronic “rails” in the short to medium term

2

Innovation concentrated around devices & channel options, customer interface, authentication

3

Sometimes under-served pockets of inefficiency are exploited and enhanced e.g. PayPal

5

Blockchain/ Distributed Ledger/ Cybercurrencies still immature and in an experimental/ hype phase

6

Formal NPS has a tremendous capacity to absorb new channels, devices and form factors, as well as new entrants in the value chain

1

Proprietary, closed loop payment solutions unlikely to succeed

4

Section 6 Q & A