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The South African National

Payment System in context


Walter Volker Investment Symposium
CEO Wits Business School
Payments Association of
South Africa (PASA) 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?
ALL payment systems in South Africa

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

4
PASA and the South African Payments landscape

PASA (established in 1996 and formally


recognised in 1999) fulfils a delegated PASA Mandate
regulatory role…
Members
33
The South African Reserve Bank derives its
PSOs, [VALUE]
mandate and power to establish, conduct,
monitor, regulate and supervise payment,
clearing or settlement systems from section Mission
10(1)(c) the South African Reserve Bank, 1989 TPPPs
To manage and develop
(Act 90 of 1989) (SARB Act). 195
the NPS and facilitate
integration with
international payments
• Maintain safe and efficient NPS
“infrastructure” SOs, 95

• Stimulate, encourage & facilitate the


development of new infrastructure”
• Protect a critical ‘common’ public asset
Banks PSO's SO's TPPP's

• 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

5
The “Onion Ring”
Stakeholders in the NPS Intensity of regulation
increases from outer to
Customers inner core

Third Party Payment Providers (TPPPs)


Payment Service Banks and non-Banks
Providers Payment Service Providers
Banks or non-Banks
Clearing Participants
Banks or Designated Clearing Participants
Retail Corporate

Settlement Participants

RTGS (SAMOS)

PSO

SO

Payment Enablers/ SO
Infrastructure
Providers
SO
Section 2
Payment system size and trends
Trillions

R0
R2
R4
R6
R8
R 10
R 12
R 14

8
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11

RTL
Jul-11
Oct-11
Jan-12
Apr-12

Batches
Jul-12
Oct-12
Jan-13

Total
Monthly settlement values through SAMOS

Apr-13
Jul-13
Settlement values - 10 year history

Oct-13
Jan-14
Apr-14
Jul-14
SA Payments Landscape - Wholesale vs Retail

Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
SA Payments Landscape - Wholesale vs Retail
Annual settlement values through SAMOS
As at September each year
R140
Trillions

R120

R100

R80

R60

R106.87
R105.43
R94.01
R81.19
R40

R67.96
R66.35

R65.22
R59.52

R58.70
R55.20

R20

R0
Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17
RTL Batches

9
SA Payments Landscape 2017 RTC
0.4%
EFT Credit
14.5%

The NPS EFT Debit


[CATEGORY 11.5%
NAME]
9% Annual AEDO
Card Retail 0.4%
56.2% Volumes
Retail Volumes NAEDO
4.3%

ATM
Cheque 12.5%
R118.1 Trillion settled 0.2%
through RTGS annually

Cheque Card RTC EFT Debit


ATM 7.3% 2.4%
1.7% 7.0%
1.1%
[CATEGORY AEDO
NAEDO
NAME] 1.3%
0.1%
91%
Retail High Value Annual
Retail Value
Retail
Values
95% Settled during Day

5% Settled during Night window

EFT Credit
79.0%
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SA Payments Landscape
Growth in payments streams – 2010 to 2016
Volume Value Volume Value
516m R8.5 Trillion 410m R752.9bn
CAGR CAGR
4.1% EFT Credits 3.2% EFT Debits
407m R4.8 Trillion 329m R565.9bn

15m R255.2bn 153m R118.9bn

CAGR CAGR
30.9% RTC 5.9% NAEDO
3m R38.9bn 102m R52.4bn

13m R15.6bn
42m R938.6bn
8m
CAGR
CAGR Cheques 7.6%
-22.2% AEDO
7m R139.2bn R6.3bn

2bn R784bn 446m R181.9bn

CAGR CAGR
14.8% Cards 5.8% ATMs
763m 302m
R305bn R91.2bn

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Section 3
Payments and the economy
The NPS as an enabler of economic activity

GOVERNMENT

FIRMS ( SUPPLY GOOD & SERVICES) HOUSEHOLDS - CONSUMERS

GLOBAL MARKETS

13
The NPS as an enabler of economic activity cont.

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.

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Section 4
Forces changing payments
Forces changing payments
Digitisation

Fragmentation Competition

Change in Commoditisation
Regulation

16
Digitisation
Growing number of form factors

17
Digitisation cont.

• Proliferation of new devices and channel options


• Growing number of digital payment solutions

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Competition
2017
• New entrants 33 Members
95 SOs
• Growing non-bank participants
195 TPPPs
• Fragmentation of the value chain

2013
100 SOs & TPPPs
25 Members

2008
< 10 SOs and TPPPs
< 23 Members

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Regulation
Increased regulation
FSR Bill COFI Bill NPS Act POPIA
 Bill passed by National  PASA EXO is part of a  Two members of PASA  Information Regulator
Assembly on 22 June workgroup established EXO are part of an Expert has published its 5 year
2017. by NT considering Group reviewing the NPS strategic plan.
 Awaiting signature by the conduct issues. Act.  Priorities are
President before  Bill is expected in quarter  A draft policy document Regulations, Codes,
becoming an Act. 4 of 2017. is being considered at stakeholder engagement,
present. analysis of legislation
impacting on its
operating environment.

Cybercrimes/security Bill AC Directive CMA Directive FATF Directive


 Bill was published on 3  Directive was published  Published on 30 May  FIC Ammendment Act 1
July 2017 for comment. on 23 June 2017. 2017. of 2017 - Risk based
 Comment is being  ‘Implementation plan’  All cross border low approach
collated by PASA for discussed in the Directive value EFT credits to be  Main focus – Compliance
submission on 10 is that as agreed with the passed through SADC Recommendation 16
August. SARB on 2016 RCSO by 1 July 2018
 FICA focus – customer
due diligence
 Managing i.t.o. FIC Act

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Regulation
More inclusive regulatory framework

• Banks
• Designated non-banks

Tiered membership • PCH System Operators Fintech


• System Operators Open Banking
Payment Service Providers
• Third Party Payment Providers

Appropriate level of • User Associations


Regulation vs Risk • Consumer Representative bodies

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Section 5
Opportunity or disruption?
Conclusions
1
Formal NPS has a tremendous capacity to absorb new channels, devices and form factors, as
well as new entrants in the value chain

2
Unlikely to have fundamental disruption of the basic card or electronic “rails” in
the short to medium term

3
Innovation concentrated around devices & channel options, customer interface,
authentication

4
Proprietary, closed loop payment solutions unlikely to succeed

5
Sometimes under-served pockets of inefficiency are exploited and enhanced
e.g. PayPal

6
Blockchain/ Distributed Ledger/ Cybercurrencies still immature and in an experimental/ hype
phase

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Section 6
Q&A