Payments via non-banks to be streamlined

Asapp founders at the launch of the industry body in Santon, Johannesburg.

Part of modernising programme to reduce the reliance on cash

The Reserve Bank will allow digital payment firms to handle certain licensed banking activities while it finalises a regulatory review that could open the door for non-banking institutions to make and accept payments without a banking intermediary.

Many companies have entered the payments market, providing digital platforms for financial transactions such as money transfers, lending and insurance, among other things. However, regulations require them to partner with the holder of a banking licence for these transactions to be cleared.

The Bank - as part of its programme to modernise payment systems and reduce reliance on cash - is reviewing regulatory frameworks to allow non-banks to directly access the national payment systems and reduce reliance on cash. The aim is to have banks and non-banks, including fintech firms, compete for the full range of payment services across the entire payment value chain in the same legal and regulatory frameworks.

Speaking at the launch of the Association for South African Payment Providers (ASAPP), Tim Masela, head of the Bank's national payment system department, said it had issued a policy paper on Banks Act reforms.

"In this journey, our quest is to ensure that we enable access to the system ... because we recognise the roles of the non-bank is fundamental in the payment system".

While the regulatory changes were under way, the Bank "has embarked on a parallel process to ensure we engage in possibilities of enabling non-banks to enter based on the current legal and regulatory framework".

Store of value

Among the challenges being addressed is non-banking institutions holding store of value, because in terms of the Banks Act only licensed financial institutions are allowed to do so. A store of value is money, an asset or a commodity that can be stored and saved for future use without losing value. Fintech firms are required to store these with banks.

"We are aligned with the Prudential Authority that there is going to be an exemption from the Banks Act to parties that are holding stores of value; we call that process pooling of funds, from many people with accounts, and not necessarily to be doing banking, [but] enabling those people to transact." said Masela.

The Bank wanted a system that ensured regulation based on activity, and not on the type of institution, he said.

"For instance, we'd want to have a system that says if you engage in a specific activity,[it] doesn't matter whether you are a bank or a non-bank - as long as you meet the criteria, you should be allowed to enter ... [and] once you enter, be regulated based on the activity."

Tim Masela, head of the national payment system department at the Reserve Bank.

The proposed changes would also contribute to a reduction of cash payments, which continued to dominate, especially in the informal economy, which was growing at more than 20% annually.

CEO of JSE-listed payment group Lesaka and ASAPP chairperson, Lincoln Mali, said reliance on cash presented both a challenge and an opportunity. While cash remained essential for many, it limited efficiency, inclusivity and transparency in the broader economy.

"Globally, non-bank entities are driving the future of payments. In just more than a decade, non-bank and fintech disruptors have gained substantial market share, transforming the industry. South Africa is following this trajectory, with non-banks positioned to play an significant role. ASAPP is here to lead this evolution and ensure all participants in the payments ecosystem have the tools to succeed."

Mali said ASAPP - whose founding members include Altron, Hello Group, Ikhokha, Lesaka Technologies, Network International, Peach Payments, Shop2Shop and Yoco - cannot achieve this alone, as it required policymakers to create a conducive environment for the change to happen expeditiously.

Democratised

"The regulator said they are going to be passing regulations and laws to allow non-banks to participate without leading [needing] a bank.

"That is a huge plus for us. We don't know

what the true nature of those regulations would look like, but already it's pointing in the right direction."

He said ASAPP wanted a payment system that was democratised and digitalised.

"The cost of transactions is prohibitive to the small business and to the consumer, and that's why they end up using cash, because the alternatives look expensive and the alternatives don't look viable. What we need to do is to show viable alternatives to cash."

Mali made reference to India which put in place a unified payment interface (UPI) - an app that allows users to link bank accounts for ease of payment - that operated on a mobile phone.

ORIGINAL SOURCE | Sunday Times (Second Edition), Business Times. Sunday, February 02, 2025. Page 4