A review of payments interoperability in the Southern …€¦ · · 2013-05-06A review of payments interoperability in the Southern African Development ... intra-regional trade

Brad Gillis has been in the payments industryfor the past 13 years, joining FirstRand in 1998as CFO (chief financial officer) and businessowner of FNB’s electronic banking business,where he was instrumental in merging the pay-ments businesses within and across the group.In 2004, Brad joined the SA Payments StrategyAssociation (SAPSA), becoming head of SAPSAin 2005. SAPSA focused on leading strategy forthe payments industry, particularly in the inter-bank environment. He moved over toBankservAfrica in 2008 as head of the businessdivision, responsible for the company’s newbusiness growth, product support and clientrelations, and the company’s strategic marketingdirection. In 2010, BankservAfrica restructuredinto fully accountable business units andrebranded in line with its broader 2014 strategy.As part of this restructure, Brad was appointedCEO Regulated Products, which includes all ofBankservAfrica’s clearing and settlement value-added products.

Rishi Pillay is the CEO of the Funds TransferBusiness Unit within BankservAfrica. He hasover 16 years’ experience within the bankingindustry, having fulfilled senior managementroles across retail banking, operations, productmanagement and IT. He has worked extensivelyin South Africa and the Southern AfricaDevelopment Community (SADC) region and ispassionate about the market dynamics of the

region, especially the lack of access to conven-ient, cheap payment mechanisms to the majorityof the underbanked and unbanked populations.Rishi has academic qualifications from leadinguniversities in South Africa, the UK and the USAcovering business management, strategy andinnovation.

ABSTRACT

Payments interoperability is a concept that iswidely misunderstood, or at the very least, con-sidered in a very narrow sense. The authorshope to provide an extensive explanation of theconcept and to highlight the conditions necessaryto achieve interoperability as well as the perva-siveness in the SADC Region. The authorswill present a vision for payments interoperabil-ity in SADC based on a five-tier model thatencompasses socio-economic, technical and regu-latory issues. The envisaged benefits to theregion are described in some detail, and readerswill get a sense of some of the current develop-ments that form the basis for the future pay-ments regime of SADC. The proliferation ofelectronic payments in order to achieve cash dis-placement is deemed possible only with an effec-tive cross border, multi-currency interoperablepayments environment. The authors wish topromote awareness; debate and action that willultimately see an efficient payments system con-tribute to the growth of the region and the upliftof the living standards of its residents.

Journal of Payments Strategy & Systems Volume 6 Number 2

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Journal of Payments Strategy & Systems Volume 6 Number 2

Journal of Payments Strategy &SystemsVol. 6, No. 2, 2012, pp. 144–158� Henry Stewart Publications,1750–1806

A review of payments interoperability inthe Southern African DevelopmentCommunity region

Brad Gillis and Rishi PillayReceived (in revised form): 13th April, 2012BankservAfrica, 243 Booysens Road, Selby, Johannesburg, 2001, South Africa. Tel: +27 114974000; Fax: +27 114930595; e-mail: rì[email protected]

Rishi Pillay

Brad Gillis

Gillis:JSC page.qxd 18/09/2012 17:26 Page 144

Keywords: payments interoperability,SADC, Southern African DevelopmentCommunity, ISO20022, interchange,regulatory framework, electronic pay-ments, mobile payments

INTRODUCTION‘Interoperability’ refers to the ability ofdiverse systems and organisations to worktogether (‘inter-operate’). The term isoften used in a technical systems engineer-ing sense, or alternatively in a broad sense,taking into account social, political andorganisational factors that affect system tosystem performance.

With payments, factors to consider aremultiple currencies, geography, language,financial services providers, interchange,governments, fiscal and monetary policies,and that is before even considering thetechnicalities of IT protocols, operatingsystems, devices and communication pro-tocols.

According to the Bank for International

Settlements (BIS), payment system inter-operability is:

‘One of the principal components of acountry’s monetary and financial systemand, therefore, crucial to a country’s eco-nomic development. It is through thenational payment system that money istransferred between buyers and sellers incommercial and financial transactions. Ifdone well, the development of thenational payment system can reduceoverall transaction costs and expand theopportunities for commercial and finan-cial transactions in an economy.’1

The Southern African DevelopmentCommunity (SADC) Committee ofCentral Bank Governors recognised thatkey to the region’s growth and monetaryunion ambitions is the establishment andimprovement of payments, clearing andsettlement, including interoperability bothwithin and across the countries within theSADC.

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Figure 1 A visionfor paymentsinteroperability inthe SADC region


The aim of this paper is to examine thecurrent conditions and progress towardspayments interoperability in the SADCregion (see Figure 1). The authors examinethe existing environments in terms of:

• sound regulatory and legal frameworks;• integrated financial infrastructure;• common payments standards;• cross-border settlement and clearing;• economic considerations.

BENEFITS OF INTEROPERABILITY TO THE SADCIn general, SADC payment systems remainfragmented, inefficient, costly and under-developed. This is a key impediment tointra-regional trade and an obstacle toachieving a single common market in theregion.

Most SADC economies, from a retailperspective, are cash based, involving a lotof paperwork to effect payments andtransact business across borders. This ren-ders the payment system very costly andinefficient. In addition, with the exceptionof South Africa and one or two othercountries, payment systems in the SADCare very small in scale, fragmented and lackcompetition, resulting in inefficiencies andhigh transaction costs.

The development of payment systems isclosely associated with the movement ofgoods, services, capital and people. An effi-cient payment system reduces costs anddelays in effecting transactions as well asminimising the risks of holding cash, suchas theft, currency counterfeit, and loss ofinterest and exchange rate value.

Developed, integrated payment systemspromote cross-border trade, intra-regionaltrade and regional integration. This isbecause of:

• the efficiency of circulation of goodsand services;

• the pace of economic expansion due toenhanced competition;

• improved efficiency and productivity;• minimised transaction costs;• improved trust in the security and relia-

bility of payment instruments.

Indirectly, there are other benefits ofstrengthening payment systems that canhelp promote intra-regional trade, such as:

• facilitating sound monetary policy andliquidity management;

• improving the management of bothcredit and systemic risk as a result ofvalue transfers being completed effi-ciently and within acceptable timescales;

• enhancing monetary and financialsector integration;

• expediting customs processing and gov-ernment transactions;

• supporting foreign exchange trading;• facilitation of financial sector develop-

ment by the introduction of new finan-cial instruments, products, institutionsand markets.2

SOUND REGULATORY AND LEGALFRAMEWORKSA fundamental aspect to achieving andenabling the desired benefits is the estab-lishment of a sound regulatory environ-ment both within the SADC participatingcountries and across them.

Figure 2 describes the various andoften diverse number of participants/sta-keholders in a national payment system,each fulfilling a specific function in thevalue chain. These range from the Real-Time Gross Settlement (RTGS) environ-ment (which in most cases is controlledby the central bank) to the clearinghouses facilitating retail payment clearingfor authorised participants, to the systemoperators and third-party payment serv-ice providers who service the retailer,

Payments interoperability in the SADC region

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consumer or corporate with paymentservices.

These factors are no less importantwhen it comes to making cross-borderpayments and, in particular, withinregions wishing to promote and sustainhubs of economic activity and growth(Figure 3).

Establishing the correct levels of regula-tory oversight that ensure acceptablearrangements for management of riskwhile still stimulating active use of theplatform(s) is key. Cooperation and thepolitical will to succeed are also absoluteimperatives.

The balanceAchieving the balance between managingrisk and stimulating market demand of anestablished payments platform is key.Ensuring the existence of an environmentthat promotes innovation is also essential,especially given modern technology andthe resultant payment system convergencebeing experienced. The responsibility ofdevising and implementing a regional pay-ment strategy to achieve this lies primarilywith the central banks and the establishedregional mechanisms.

Trust and acceptanceTo achieve levels of trust and acceptanceof the newly created regional paymentsystem platform by country, regional andinternational participants, there are anumber of criteria to consider:

• regulation that promotes and ensures asafe and sound operating environment;

• effective, efficient and compliant over-sight and monitoring regulation, whichis fit for the purpose of the various pay-ment systems it serves;

• in-country and regional interoperabilitythrough open, flexible and commonstandards;

• appropriate, cost-effective systems andservices;

• use of shared infrastructure and pay-ment capabilities that are world classand have a proven record of sustaineddelivery and reliability;

• an adaptable capability that can quicklyadjust to changing market conditionsand innovations;

• adoption of a phased approach such asone through the common monetaryarea (CMA), providing a platform to:—test the system concepts of regional

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Figure 2Participants/stake-holders in a nationalpayments system

Participants in the

SA national

payment systems

(similar

arrangements could

be expected in

other jurisdictions)

Source: http://www.pasa.org.za


clearing and settlement—create confidence in a regional set-

tlement environment—break down barriers and misconcep-

tions.

INTEGRATED FINANCIALINFRASTRUCTUREFinancial infrastructure, broadly defined,forms the underlying foundation for acountry’s financial system. It includes allinstitutions, information, technologies,rules and standards that enable financialintermediation. Poor financial infrastruc-ture in many developing countries poses aconsiderable constraint on financial insti-

tutions to expand their offering of finan-cial services — credit, savings and paymentservices — to underserved segments of thepopulation and the economy.

A sound payment system can mitigatefinancial crises by reducing or eliminatingsettlement risk related to financial markettransactions, in particular credit, liquidityand operational risks. One of the mainsources of settlement risk in the paymentsystem could be operational risk.Operational effectiveness ensures the cir-culation of funds in the financial systemand efficient liquidity management by par-ticipants. Operational risk emanating fromthe payment system infrastructure shouldtherefore be well managed and minimised.


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Figure 3 Aproposed regionalregulatoryframework forpayments in theSADC region


SADC integrationRegional payment system infrastructureintegration could provide many benefits,including network externalities, interoper-ability, reduced capital investment by theregion and standardised payment systemrisk-reduction measures. Regional infra-structure integration could also result indisadvantages, such as concentration risk.In order to enhance the operational effec-tiveness of the regional payment systemand to address concentration risk, ade-quate BCP and DR arrangements need tobe in place in the region.3

Financial infrastructure is critical for theefficient provision of and access to finan-cial services. Innovations in payment sys-tems can help to reach customers wherebank branches do not exist, as with auto-

mated teller machines, mobile bankingand other point-of-sale arrangements(Figures 4 and 5).

According to the World Bank Paymentssurvey 2008,4 financial infrastructure inthe SADC region shows a high degree ofasymmetry both across countries andwithin them. South Africa, Mauritius andBotswana have the most developed infra-structures, but even within theseeconomies there is a stark contrastbetween rural and urban development.The statistics below support this view.Substantial development, however, has andis taking place in many of the SADCcountries.

The impact of mobileNew technologies, such as mobile bank-

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Figure 4 ATMs permillion people

Figure 5 POS permillion people


ing, provide opportunities to capturefunds digitally, which can contribute tothe monetary base in the economy. Sincethe number of people with cell phones inmany economies far exceeds the numberof those with bank accounts, this newdistribution mechanism offers greatpotential.

Africa is the second largest mobilemarket by connections and the fastestgrowing (649 million connections in Q4for 2011 and will reach 735 million by the

end of 2012) in the world (according tothe GSMA report released in November20115) (Figures 6 and 7).

Mobile phone penetration in the SADCis significantly higher than financial serv-ices penetration. Mobile is also playing anincreasingly important role in remittancepayment facilitation. Although remittancesare centred on cash and movement of cash,through mobile technologies, they can alsobecome a likely cash displacement catalystto stimulate market adoption of other


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Figure 6 Mobilephones perthousand people

Figure 7 Globalmobile connectionsby region (millions)


financial payments and banking facilities asthe need presents itself.

Platform stimulationAchieving the establishment of an effectiveand efficient payment infrastructure plat-form is only part of the solution; stimulat-ing demand for the use of the platform isalso an obvious requirement and an areawhere the regulators and governments canplay significant roles:

• regulators: through ensuring robust, bal-anced regulation that does not burdenlow-risk, cost-sensitive payment systemssuch as micro payments and remittances

• governments: as large human resourceemployers, encouraging the migrationof salary credits or payments from cashand cheques (which are easily cashed)to bank account deposits.

COMMON PAYMENT STANDARDSCommon standards enhance the opera-tional effectiveness and interoperability ofthe payment systems. Standards are definedas minimum requirements regarding infra-structure and design (eg technology, secu-rity and payment products) and businessaspects (eg practices and arrangements) ofthe payment system industry. Standardsensure a common understanding ofrequirements.

A major objective of implementingstandards is to enhance security within thepayment system. These standards focus on,among other things, the prevention offraud, increasing trust, integrity, access toand confidence in the payment system.6

Standards for payment messages havebeen touted as significant enablers interms of innovation, global interoperabil-ity, competition, efficiency and cost reduc-tion. Common standards will enhancesecurity and interoperability in regionalpayment systems.

Payment message formats

ISO 20022 is an eXtensible MarkupLanguage (XML) schema for the develop-ment of financial messages. This structureis capable of supporting multiple paymenttypes and forms the backbone of paymentmessaging required to support Single EuroPayments Area (SEPA) integration inEurope. The result is a groundswell ofmajor payment market participants invest-ing in ISO 20022.

The rationale for adopting this standardis that payments represented in this struc-ture can be mapped to the data require-ments of any major clearing system orpayments process. In other words, it formsthe core of payment processing and offersthe possibility of true global payment serv-ices interoperability.

The SADC Payment System Projecthas adopted the ISO 20022 standard as thebasis for developing financial messages, atleast in the retail payments environment.South Africa leads the way in terms of re-engineering message formats to adhere tothe ISO 20022 standard.

International Payments FrameworkThe International Payments Framework(IPF) initiative through the InternationalPayments Framework Association (IPFA)includes members from various nations(including the SADC) and aims to developrules for the exchange of cross-borderelectronic fund transfers. Organisationscomprising the IPF include primarilyfinancial institutions and Clearing andSettlement Mechanisms, as well as associa-tions, standard-setting bodies, industry ven-dors and other users of payment services.

The IPF is seeking to enable betterinteroperability between existing domesticand/or regional payment systems. As such,it seeks to establish rules and proceduresfor the exchange of transactions in multi-ple currencies based on existing clearingand settlement practices internationally.

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CROSS-BORDER CLEARING ANDSETTLEMENT

Cross-border payment, clearing and set-tlement systems in the SADC are para-mount in enabling the safe and efficientcirculation of money, thereby facilitatingregional economic development. SoundSADC payment, clearing and settlementsystems will enhance regional financialstability by providing, among otherthings, appropriate SADC paymentsystem risk-reduction measures. The gen-eral consensus within the SADC is thatthe credit-push payment principle is thepreferred payment method and electronicinstruments are preferred to paper-basedinstruments.

According to the National PaymentSystem Framework and Strategy, Vision2015 of the South African Reserve Bank,7

critical success factors include:

• SADC stakeholder interaction, cooper-ation, support and commitment from allrelevant authorities

• harmonised SADC payment systemlegal frameworks in all jurisdictions

• availability of management informationsystems allowing each country’s clearingand settlement position to be visible

• harmonised payment, clearing and set-tlement standards in the SADC.

RemittancesCross-border remittance payments aredefined as person-to-person paymentsfrom senders in one country to recipientsin another. In the 2010 Remittance PricesWorldwide Database, the World Bankidentified 29 countries as major remit-tance sending countries. South Africa isthe major remittance sending country inthe SADC.

Through the proposed anti-money-laundering and exchange control relax-ation by the South African FinancialIntelligence Centre and the South African

Financial Surveillance Authority, remit-tances flowing through informal channelscan be brought under formal regulatoryoversight.

Efficiency and security of cross-border paymentsFor cross-border payments, the transfermechanism is considered most efficientwhen the various players in the valuetransfer chain, from retail service to endusers through to settlement services foreach leg of the payment, are linkedthrough contract or partnership and tech-nical connectivity. This requires somedegree of harmonisation of standards forinteroperability and interconnectivity. Theabsence of a minimum required degree ofharmonisation and standardisation in theretail payment systems of the receiving andsending countries is the principal sourceof difficulty in creating efficient cross-border payment mechanisms for retailpayments.

Standardisation promotes effectivecompetition among the various paymentservice providers and their transfer chan-nels in each corridor, which typicallyimproves service cost and speed of deliv-ery. Standardisation can also improve otheraspects of end-to-end efficiency and safety,eg standardised messaging formats used bycorrespondent banks to generate fewermisdirected payments. Similarly, standard-ised payment instruments and transactionsystems that allow greater interoperabilityof front-end networks create more con-venient access to services and funds, espe-cially at the receiver end of the transfer.

ECONOMIC CONSIDERATIONSThe core economic factors and theirinfluence on development in the commer-cial, industrial and financial sectors are par-ticularly relevant to the payment serviceneeds and capabilities of the country. The


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SADC countries differ widely in terms ofthese factors. Of the 15 member countries,six are landlocked, six have populationsbelow ten million people, ten haveeconomies smaller than US$10bn perannum, and several rely on transnationalriver basins for their water. South Africa isthe economic anchor of the region, buthalf a dozen of the SADC’s member statesare large or potentially large economies(including Angola, the DemocraticRepublic of Congo, Mozambique,Tanzania, Zambia and Zimbabwe).

Principal economic factors influencingnational payment system developmentinclude the following.

• The level and stability of overall economicgrowth. Economic activity in the SADCregion picked up in 2010 following aslow down experienced in 2008 and2009 as a result of the global economicand financial crisis (Figure 8). The reac-celeration in economic activity in theSADC region was driven by recovery ofthe global economy. This recoveryhelped to stimulate rising externaldemand, firming of international metal

prices, rising global incomes, resurgenceof capital flows to the region, as well assound macroeconomic policies bySADC member states. The global eco-nomic growth rebounded from a nega-tive growth of 0.5 per cent in 2009 to astrong growth of 5.1 per cent in 2010,presenting immense post-crisis growthopportunities for the SADC.

In response to these positive growthfactors, economic activity in the regiongrew by 5.4 per cent in 2010, comparedwith a growth of 2.3 per cent in 2009.

• Wealth distribution. Average per capitaincome in the SADC region increasedby more than 12.1 per cent fromUS$3,082 in 2009 to US$3,456 in 2010(Figure 9). The increase in per capitaincome in 2010 mainly reflectsimproved economic activity in theregion following sluggish growth in2009. Botswana, Mauritius, Seychellesand South Africa are leading othercountries with per capita incomesgreater than US$7,000 in 2010. Angola,Lesotho, Namibia, Swaziland andZambia also enjoy relatively high percapita incomes in excess of US$1,000.

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Figure 8 SADCaverage economicgrowth rates

Source: World Economic Outlook, June 2011 update


The rest of the countries have less thanUS$1,000 in per capita income.

• The education and skill levels of, and avail-ability of training facilities for, the labourforce. The SADC countries differ vastlywith respect to education and skillslevels, both across and within countries.Class differences and skewed wealth dis-tribution restrict access to quality edu-cation and training. Quality ofgovernment education is often poorand does not reach the entire popula-tion. Private/public sector cooperationis almost non-existent, resulting in adisconnect between skills training andavailability.

• The development of industrial infrastructuresuch as telecommunications and transporta-tion systems. Over the period1995–2005, infrastructure improve-ments have boosted southern Africa’sgrowth by 1.2 percentage points percapita per year. This positive growtheffect has come almost entirely from the

growth of mobile telephony; improve-ments in the road network made smallcontributions. Inadequate power infra-structure has eroded growth more insouthern Africa than in other parts ofthe continent. If southern Africa’s infra-structure could be improved to the levelof the strongest-performing country inAfrica (Mauritius), regional per capitagrowth performance would be boostedby some 3 percentage points.

The SADC offers the best access toinformation and communications tech-nology (ICT) services of any regionaleconomic community, but these serv-ices are priced high. The telecommuni-cations market in the SADC has beenopen to foreign investors since the early1990s and several large companiesdominate the market. Three countriesgained access to a submarine cable, andseveral more will be connected throughprojects that are under way. No land-locked country has been connected as


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Source: SADC Central Banks and World Bank (Seychelles)

Figure 9 SADCper capita income(US$)


yet. Creating competition among land-ing stations is critical to providing anaffordable service. In order for the ben-efits of submarine access to spreadthroughout the region, it is necessary tocomplete the 5,100 missing kilometresof terrestrial fibre optic network.Associated investments are small, andanticipated returns on reducing theprice of broadband access relativelyhigh, with payback periods of less thana year.

Completing and preserving theSADC’s regional ICT, power and trans-port backbones would require sustainedspending of US$2.1bn annually overthe course of a decade. This is about 7per cent of the overall infrastructurespending requirements (regional andnational) for the SADC region as awhole. Of the total US$2.1bn, aroundUS$1.6bn a year is associated withinvestment in new regional infrastruc-ture assets, while the balance ofUS$0.4bn is needed to maintain theregional network in perpetuity onceestablished, most of it being associatedwith road maintenance. By far thelargest item on the regional spendingagenda is the power sector, with specif-ically regional power assets demandingUS$1.4bn per year over the nextdecade. The transport sector comes insecond place, with an annual spendingrequirement of US$0.3bn.

• The pace of innovation and technologicalchange. A Protocol on Science,Technology and Innovation (STI) wassigned by Heads of State andGovernment in August 2008, inJohannesburg, South Africa. It is a blue-print document, which outlines theframework of cooperation betweenmember states within the SADCregion. It came about through extensivedeliberations between member statesand talks on scientific and technological

matters of interest within the region.Some of the aims and objectives of theProtocol are to:—establish institutional mechanisms in

order to strengthen regional cooper-ation and coordination on STI

—institute management and coordina-tion structures with clearly definedfunctions, which will facilitate theimplementation of regional STI pro-grammes

—pool resources for scientific research,technological development andinnovation within the region

—optimise public and private invest-ment in research and developmentwithin the region and leverageexternal contributions

—recognise, develop and promote thevalue of indigenous knowledge sys-tems and technologies

—share experiences and develop jointinitiatives that promote appropriatetechnologies for wealth creation andelimination of poverty within com-munities, especially in rural areas.

COMPLEXITIES, PROBLEMS ANDOPPORTUNITIES

MarketsThe varieties of markets that will needservicing by SADC payment system prod-ucts are numerous, ranging from theunbanked market, needing cash remit-tances and basic transactional capabilities,to the formally banked consumer and cor-porate markets, needing more sophisti-cated instruments to service theirrequirements. While the more maturemarkets will undoubtedly benefit from agreater degree of regional interoperabilityand the economic benefits that this willbring, focus will also need to be on bring-ing formal transactional and basic bankingoptions to the unbanked and under-

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banked, thus contributing to creatingvolume demand for the platform.

ParticipantsTraditionally, payment systems were thedomain of central banks and their cus-tomers. Today, the world is far differentwith an ever-increasing number of non-traditional payments service providersentering the market. Indeed, controlledbroader access by participants other thanbanks is often encouraged, given the desirefor increased competition.

The South African National PaymentSystem Act makes provision for a numberof non-traditional players including:

• system operators who facilitate paymentinfrastructure connectivity on behalf ofa corporate client or even a bank thatdoes not possess the technical skills toconnect to the national payment systemand would rather outsource this skill,given the cost and specialist nature ofthe function

• third-party payment service providerswho collect and make payments onbehalf of their clients; an example ofsuch a service provider would be asalary payments bureau

• designated payment clearing partici-pants, which provide for non-bankorganisations to become designated,through the central bank, as clearingparticipants in their own name; the set-tlement function remains a bank onlyfunction.

Within the SADC, these various partici-pants, including banks and their cus-tomers, will need consideration as part ofthe model and are likely to play a vital rolein stimulating the need for payment inter-operability and growing the transactionvolume throughput in the system. Theywill provide increased levels of competi-tion that will, in turn, drive innovative and

cost-efficient payment products andrelated services for the region.

Cash and chequesThese old payment stalwarts are not to beignored and, while cheques in some mar-kets are declining at a rate in excess of 20per cent per year, there is still demand inthe small and medium enterprise market.As part of the SADC’s payment strategy,finding suitable electronic alternatives,again possibly with mobile complement-ing the solution, will see the exit ofcheques becoming an option for consider-ation.

Cash, in contrast, is likely to remain adominant payment mechanism for manyyears to come and, while cash displace-ment strategies are likely to make someinroads, cash is unlikely to warrant an exitstrategy any time soon. To this end, elec-tronic management of country andregional cash balances and its movement isa necessity, and automated clearing housescan and do facilitate, through their sys-tems, a central and interoperable role.

Electronic paymentsPayment service demand stimulationthrough the encouragement of electronicdeposits (batch and real time), such assalary credits, and strategies around cashdisplacement will not only contribute tothe volume flowing through the paymentsystems, but will also have a positiveimpact on payment velocity and retailfunding availability.

Recurring electronic payments such asutility payments, insurance premiums andloan repayments can typically be servicedthrough a direct debit batch service that‘pulls’ the transaction from the bankaccount on an agreed date. Other servicesthat have been developed in recent yearsinclude low income collection productsthat function through a randomised col-lection approach, so that one collector is


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not given preference over another. Thisproduct also uses card authentication tech-nology, and it is quite conceivable thatmobile and even biometric authenticationcould become natural replacements oralternatives to cards in certain markets.

Electronic payment mechanisms such ascard products are a natural complement toa bank account deposit or a credit facility.They give control and flexibility to thecustomer and the management of theirfinancial activities. Interoperable cardproducts can be expensive, however, asthey are largely supplied through interna-tional companies offering features such asinternational interoperability, which areunlikely to be useful to a market not proneto internet use or overseas travel.Alternatives such as an interoperabledomestic card scheme might prove to be amore cost-effective alternative.

The use of technologies such as near-field communication, biometrics and therole that mobile will undeniably play inthe provision of payment transactions, arefundamental ingredients in stimulating thedemand. It is worth reiterating that linkingmobile, the technology with which even acustomer with very little financial literacyis familiar, to the card environment couldbecome the bridging catalyst to a broadermarket acceptance of formal financialservices and products, thus increasing pay-ment volume across the platform.

InterchangeOne of the overarching economic factorsthat will need consideration is the estab-lishment of levels of interchange that willflow between the transaction acquirers andissuers in the payment systems. Levels willneed to be set so that the economics ofboth sides of the market are balanced,ensuring stimulation of demand for theservice. New and emerging payment sys-tems might also need a different approachto stimulate demand as opposed to the

more mature and established markets thathave established acceptance and demand.

Interchange has been the subject ofdebate for many years in countries such asthe USA, the European Union, Australiaand even in South Africa through itsCompetition Commission Enquiry(2006–08). The central bank of SouthAfrica is currently facilitating a process toreview the local interchange dynamicswith a view to establishing a methodologyor approach that will enable the revisionof interchange levels across its nationalpayment system. The impact of this processon the establishment of the SADC pay-ment system will need consideration.

CONCLUSIONIn the context of regionalisation, themembers of the SADC are strivingtowards creating an environment con-ducive to payments interoperability. MostSADC economies, from a retail perspec-tive, are cash based, which renders the pay-ment system very costly and inefficient. Inaddition, with the exception of SouthAfrica, payment systems in the SADC arevery small in scale, fragmented and lackcompetition, resulting in inefficiencies andhigh transaction costs. These are keyimpediments to intra-regional trade andan obstacle to achieving a single commonmarket in the region.

Regulators and governments are start-ing to consider ways of stimulatingdemand for the use of electronic paymentsthrough ensuring robust, balanced regula-tion that does not burden low-risk, cost-sensitive payment systems such as micropayments and remittances. The publicsector, as large human resource employersin the region, can encourage the migra-tion of salary credits or payments fromcash and cheques to bank accountdeposits.

The SADC has agreed to adopt the

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ISO 20022 message format. By adoptingcommon standards across the region, theoperational effectiveness, security andinteroperability of the payment systems areenhanced. Standards for payment messageshave been touted as significant enablers ininnovation, global interoperability, compe-tition, and efficiency and cost reduction.

The SADC cross-border payment,clearing and settlement systems are para-mount in enabling the safe and efficientcirculation of money, thereby facilitatingregional economic development. SoundSADC payment, clearing and settlementsystems will enhance regional financial sta-bility by providing, among other things,appropriate SADC payment system risk-reduction measures. The region is strivingtowards: harmonised payment system legalframeworks in all jurisdictions; the avail-ability of management information sys-tems that allow each country’s clearingand settlement position to be visible; andharmonised payment, clearing and settle-ment standards.

Despite diversity between the differentSADC countries in terms of economicfactors, activity in the region picked up in2010, following a slowdown experiencedin 2008 and 2009 as a result of the globaleconomic and financial crisis. Economicactivity in the region grew by 5.4 per centin 2010, compared with a growth of 2.3per cent in 2009. Average per capitaincome in the SADC region increased by

more than 12.1 per cent from US$3,082in 2009 to US$3,456 in 2010. Furtherinfrastructure improvements will boostsouthern Africa’s growth by up to 3.0 per-centage points per capita per year.

A concerted and coordinated approachthat puts the interests of the region abovesovereign agendas will ensure that an effi-cient and cost-effective payment environ-ment thrives and enables economicgrowth, financial inclusion and, ultimately,improved socioeconomic conditions forall citizens of the SADC.

REFERENCES

(1) <Source for quote>(2) United Nations Economic Commission

for Africa, (UNECA) (2010) ‘AssessingRegional Integration in Africa (ARIAIV): Enhancing Intra-Regional Trade’,UNECA, Addis Ababa.

(3) South African Reserve Bank (2011) ‘TheNational Payment System Frameworkand Strategy, Vision 2015’, South AfricanReserve Bank, Pretoria.

(4) The World Bank (2008) ‘PaymentSystems Worldwide: A Snapshot.Outcomes of the Global PaymentSystems Survey’, The World Bank,Washington, DC, June.

(5) GSMA (2011) Report, GSMA, London,November.

(6) South African Reserve Bank, ref. 3above.

(7) Ibid.


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A review of payments interoperability in the Southern …€¦ · · 2013-05-06A review of payments interoperability in the Southern African Development ... intra-regional trade