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MODERN: BankservAfrica is focused on modernising transactional payment digital infrastructure networks, improving service levels, investing in strategic industry projects and expansions into Africa.

Ensuring the delivery of products and services to customers is executed in a well governed, compliant manner.

1. Corporate Integrity Responsible for overseeing risk, compliance, BBBEE, occupational health and safety (OHS) and ethics, and providing an integrated view on risk.

2. Internal Audit Provides an independent and objective assessment of the governance, risk management and control processes within BankservAfrica.

3. Legal Services A cross-cutting enabler that ensures that day-to-day operations are appropriately supported while offering thought leadership on

current and impending legislation.

4. Human Capital An enablement function, helping the business reach its strategic goals by attracting and retaining

specialist skills.

Support Services overview

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We believe our reorganised Support Services team will bolster BankservAfrica by offering leaner and more specialised support functions to enable the group to achieve its ambition of being a leader in payments and transactions.2017 marks my first financial year with BankservAfrica as Chief Financial Officer. This year was characterised by a substantial amount of internal change as we aligned the business with its five-year strategy.

From a Support Services perspective, we have restructured several of our operations and added new functions, such as our Legal Services team, to ensure that we have the capabilities that meet our ambitions.

Restructuring can be challenging; however, it presents us with an opportunity to reflect on better ways to work. In the past, we had multiple groups responsible for governance, risk and compliance functions. Many of these teams worked in isolation, struggled to share information and had multiple frameworks and systems. This resulted in inefficiencies and hampered our ability to get a clear view of risk.

To address this, the Corporate Integrity function was created, responsible for overseeing risk, compliance, BBBEE, OHS and ethics. By integrating functions, we enhanced our ability to understand risk and thus grow and protect value.

We continued to streamline our balance sheet and rationalise business activities that did not support the new strategy. To that end and subsequent to year end, we disposed of our call centre, and the non-call centre business units part of BSVA Integrated Services (Pty) Ltd were transferred into South Africa Bankers. This was effective as of 30 June 2017. We have found reporting to be quicker and easier with the balance sheet simplified. This has allowed us to access information faster.

To address risks arising from increasing volumes and ageing legacy systems, we refreshed our core infrastructure to ensure reliable service delivery and to improve our resilience in supporting the South African economy.

Overview from Parusha Gajathar: Chief Financial Officer

We have since integrated these functions to enable BankservAfrica to define its principles and goals, determine how it will address risks and uncertainties, and grow and protect value.

In line with our mutual approach, we did not pass on any significant price increases to our clients. In fact, most increases were inflationary and in certain cases, like 3D Secure, we were able to pass on savings to our customers. Total revenue for the year was in line with the comparative period; the significant growth in volumes from our EFT and card services was off-set by lower than expected new business growth in Enabling Services. Digital Infrastructure and Retail Payments were our strongest revenue earners, contributing 47.9% and 34.4% respectively.

While our revenue remained in line with 2016, our costs increased significantly, resulting in decreased profitability. Total expenses (including operating expenses and impairments) increased by R111 million (22%). Our investment in our IT refresh has not only significantly changed our balance sheet over the last 18 months, but also negatively impacted our income statement. This is due to the effects of depreciation (44% up on the prior year) and computer-related charges (up 27% on the prior year) which hampered profitability. Staff costs increased by 14% to R38 million. Above normal salary increases reflect our investment in the skills base we need to operationalise key projects and priorities.

As a result of this, BankservAfrica produced a net profit before tax of R34 million. This is a decrease of 73% from 2016. While this is a large decrease, it’s in line with the business’s intention not to focus on profit maximisation.

We believe we add value by enabling our members’ businesses. This means that we are interested in financial sustainability over the long term, not profit maximisation. We would rather see benefits to our stakeholders multiply as the network expands and adds more value for users. Looking forward, we will continue to drive efficiencies, sustainability and reliability to better serve our customer base.

We encourage our readers to refer to our summarised annual financial statements on page 49 for more information.

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Corporate Integrity

GOVERNANCEBankservAfrica is committed to the standards of good corporate governance and mindful compliance, as is envisaged by the King IV Report on Corporate Governance for South Africa, 2016 (King IV). The board applies the sentiment that the King Code recommends to achieve the four cornerstones of good governance: fairness, transparency, responsibility and accountability.

The board has an overarching corporate approval framework to provide certainty and any limitations on the authority and powers within the BankservAfrica Group. This includes a summary of the powers and authorities of the shareholders, the board, the delegation of authorities and the authorities of its committees and the executive.

We believe that good governance adds value to the business by enhancing transparency and accountability, ensuring effective leadership and decision-making.

Governance is also concerned with sustainable development. We actively promote and support corporate social investment initiatives to ensure we remain a responsible corporate citizen.

Highlights

» Our new company strategy was approved, with a two-year horizon focused on delivering excellence in the national payments infrastructure. Our five-year horizon goal expands this focus to deliver excellence in the regional digital financial infrastructure.

» The board appointed new independent auditors, Deloitte & Touche.

Challenges

» Ensuring a greater focus on alignment to industry standards is ongoing.

Looking forward

The governance support service will be aiming for 100% policy alignment and compliance.

We will roll out our board evaluation programme and will use the feedback to improve governance practices and processes. We will also continue to create more awareness of the importance of good governance in the organisation.

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RISKWe recognise that sound risk management increases our customers’ confidence in us as a trusted partner. As such we are committed to managing risks through the continual improvement and implementation of best-practice risk management policies and frameworks relating to enterprise risk management and business continuity management.

The board and its subcommittees oversee the implementation of risk management and monitor its performance. The committees review development and maintenance of the external and internal controls that are in place to ensure that identified risks are effectively managed. Our enterprise risk management and business continuity management frameworks deal with risk philosophy, methodology, strategies and processes. These frameworks are reviewed annually by these committees. The committees satisfy themselves that the nature, intent and effectiveness of the risk control infrastructure within BankservAfrica are adequate and effective.

Highlights

» We streamlined policies, processes and structure to focus on our core businesses and reassess risk for non-core operations.

» The implementation of the business continuity work plan progressed with facilitated training and simulated emergency scenarios conducted.

» Risk reporting was streamlined across all operations with the development of key risk indicators, increasing the understanding of the risks the business faces.

Challenges

» Enhancing the understanding of risk and embedding a risk culture ethos across the group.

» A shortage of appropriate talent and skills exacerbates human capital mapping.

Looking forward

In collaboration with the Corporate Integrity function, the risk committee will take on a more proactive role in risk management. We will continue to address the risks that are outside of the BankservAfrica risk tolerance level as a matter of priority. We will also attempt to reduce risk within the tolerance level or appetite. We will align business continuity management and disaster recovery practices following IT refresh.

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COMPLIANCEOur compliance function ensures that the organisation implements an effective compliance and robust policy framework. BankservAfrica complies with applicable laws and binding regulations. We comply with South African company law and with those laws and regulations laid out specifically by PASA and the SARB. The compliance function considers adherence to:

» non-binding rules;

» standards and codes according to the shareholder mandate;

» constraints set out in the memorandum of incorporation (MOI); and

» together with its obligation to all stakeholders as set out in the prevailing regulatory, legislative and King IV requirements.

Highlights

» We once again attained authorisation as a payment clearing-house system operator.

» The annual reviews on the company’s MOI were completed.

» We submitted our annual employment equity report to the Department of Labour.

Challenges

» Moving towards an integrated and collaborative approach between teams while ensuring a compliance culture is instilled and ongoing.

» Data centralisation remains a challenge.

» Increased awareness is needed around our compliance methodology to ensure the purpose and approach is understood and not viewed as inflexible.

Looking forward

We are implementing a roadmap to apply the King IV compliance framework. Compliance continues to ensure that products, services and new business ventures are aligned to relevant legislation and regulations from the development stage onwards.

We will ensure that BankservAfrica leads an effective programme that strives to embed compliance within the company’s DNA to create value for the business.

Corporate Integrity (continued)

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BROAD-BASED BLACK ECONOMIC EMPOWERMENT (BBBEE)We support the objectives of BBBEE to stimulate the participation of previously disadvantaged groups in the economy to increased economic growth. Executives and their respective line managers are responsible for implementing transformation imperatives with measurable scorecards within each business unit.

Highlights

» We implemented our strategic black economic empowerment roadmap.

» We obtained a level 2 BBBEE score.

Challenges

» Transformation is a long-term business imperative, but targets are often short term, which can be challenging.

Looking forward

We have set group-wide BBBEE targets, and frameworks and policies were aligned to these targets. We follow the Financial Sector Charter targets, which are not formally approved yet. We also follow the recent Department of Trade and Industry changes to the generic codes, with targets set for each element.

Broad-based black economic empowerment scorecard

2016/2017 2015/2016 2014/2015

Ownership 14.56 14.7 14.9

Management control 7.83 7.5 5.4

Employment equity 10.88 9.06 7.1

Skills development 7.73 5.65 3.9

Preferential procurement 12.9 14.32 12.0

Enterprise development 15 15 15

Socio-economic development 3 3 3

BBBEE LEVEL Level 2 Level 2 Level 3

As South Africa continues on its journey to inclusivity and diversity in the workplace, BankservAfrica is committed to driving change in the payments infrastructure industry.

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ETHICSWe are committed to being a trusted partner in the National Payments System. This requires that we have an ethical foundation to all dealings with stakeholders. Our formalised ethics management programme and our code of ethics are in line with the requirements of King IV and offer the business a clear framework under which to operate.

Our ethics officer reports to and works with our CEO, the ethics steering committee and the social and ethics board sub-committee to ensure the business operates according to the highest ethical standards, protecting our reputation as a trusted partner.

OCCUPATIONAL HEALTH AND SAFETY (OHS)The OHS function is concerned with raising awareness to reduce potential workplace injuries. We have an OHS policy in place and conduct awareness and training to protect our employees.

Highlights

» We launched the ethics steering committee, which assists in ensuring that the company conducts its business within the ethical standards for acceptable behaviour.

Challenges

» A lack of confidence from employees in the ethics hotline

Looking forward

We are committed to embedding an ethical culture throughout the organisation. Our new values will be rolled out in the 2018 financial year and to enhance the effectiveness of our ethics hotlines, training will be conducted in 2018. We will also continue to work with industry bodies, such as the Ethics Institute, to ensure we remain abreast of industry best practices.

Highlights

» Two planned evacuations and the first shelter-in-place drill was conducted.

» Our annual baseline risk assessment was completed.

Challenges

» Our challenge is to communicate the value that OHS delivers to combat compliance-based perceptions.

Looking forward

During the year, 12 incidents occurred, resulting in 19 working days lost.

We are working on minimising hazards and OHS risks within the workplace, crafting an effective ergonomics plan, and improving OHS practices.

Corporate Integrity (continued)

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Internal Audit

The Internal Audit support function enables the delivery of BankservAfrica’s strategy by providing an independent and objective assessment of the organisation’s governance, risk management and control processes.

The support function oversees the implementation of the internal audit plan and provides quarterly reports on progress against it; provides quality assurance on business controls; performs application control reviews; and engages and liaises with external auditors, risk management and compliance as part of the combined assurance approach.

Highlights

» We implemented a combined assurance model, enabling an effective control environment.

» We increased our employee complement and now have three full-time internal auditors. We also have additional budget for specialist skills when necessary.

» We have commenced automation of the audit process by procuring and implementing an audit tool so that audit files are no longer manual/paper based and the audit process is more efficient.

Challenges

» Addressing the negative perception of auditing in the organisation and of the audit profession as a whole in the country.

» Inadequate technical capability within Internal Audit to perform value-adding assurance activities in a modernisation era.

» The ever-increasing regulatory requirements in the payments industry remains a challenge to the business, and thus Internal Audit.

Looking forward

Our goal is to be an assurance provider and a ‘trusted advisor’ within BankservAfrica. Internal Audit is responsible for giving independent objective assurance that the organisation is operating as intended to achieve its objectives, and provides insight for improving controls and reducing risk.

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Legal Services

Legal Services is an enabling and cross-cutting function that impacts the delivery of our core purpose and all its strategic projects.

BankservAfrica is a regulated entity that is regarded as a critical national infrastructure and a systemically important payments financial markets infrastructure. Therefore, the interplay between BankservAfrica’s core purpose and regulatory adherence, in an industry subject to high levels of regulatory supervision, makes the legal function an important enabler.

Legal Services ensures that day-to-day operations are appropriately supported from a legal perspective, interprets regulation and strategically guides the business on current and upcoming legislation.

Legal Services is expected to steer or influence the formulation of new legislation and regulation impacting the business, where possible.

Highlights

» We established the Legal Services function and clarified its role in delivering the group strategy.

Challenges

» Legacy issues stifle change management within the BankservAfrica group.

» Uncertain regulatory landscape, arbitrage, and volatility in the jurisdictions beyond South Africa continue to create challenging market conditions.

» A revised PASA oversight model and the implications thereof.

Looking forward

South Africa has seen an increased focus by regulators on enhanced and stricter supervisory control over the entire financial services sector. This has resulted in the introduction of a new Financial Sector Regulation Act in 2017, the review of the PASA oversight and governance model, the introduction of authenticated collections, payments modernisation initiatives, and discussions on a revised NPS Act.

All these current and forthcoming legislative changes impact our operations from a legal compliance and systems perspective.

This requires the group to be proactive and responsive, developing and employing a legal and regulatory strategy to determine how the business positions itself against new legislation and oversight changes. This helps us determine where we should align, what we need to do to ensure compliance and how we can influence outcomes in the best interest of the business and the broader national payments system.

Legal Services plays a role in shaping the future of the NPS design from a legislative and regulatory perspective. We are participants in the NPS Act Review, PASA review process and PASA legal committee. We continue to forge relationships with our stakeholders within the payments space. The function also supports Regional Engagement teams with in-country legal knowledge, updates and advisory services.

A priority is to position BankservAfrica as a market leader in payments and transactions, particularly in Africa. The function is on track to deliver on its multiple strategic initiatives, as it strives to achieve its goal of becoming a world-class and enabling legal department with a trusted business advisor status.

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Human Capital

The Human Capital support service enables the group to reach its strategic goals through attracting and retaining specialist skills. Our Human Capital strategy is designed to create the necessary competencies, capabilities, experience and motivation to deliver on its purpose.

Highlights

» We introduced a new company performance management system.

» Our new incentive programme was implemented.

» We introduced our new 70:20:10 approach to development.

Challenges

» Ensuring we build and retain skills to keep pace with the digital revolution and growth across regional operations is challenging.

» Ensuring proper change management during the corporate restructure is ongoing.

Key performance indicators

2017 2016

Total number of employees in the group 478 421

» Digital Infrastructure 15 15

» Retail Payments 13 14

» Information Services 11 11

» Regional Engagement 5 7

» Enabling Services1 156 136

» Technology and Operations 173 149

» Support Services 105 89

Total number of women in the group 206 190

Women in senior management 28 24

Historically disadvantaged South African (HDSA) employees in the group 377 320

HDSAs in senior roles (management and specialist roles) 109 77

Human Capital invested in technology to improve performance management and automation procedures. Employees now benefit from these tangible enhancements.1 This is broken down into Enabling Services: 66 (2016: 78); and Contact Centre: 90 (2016: 58).

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Training and developmentWe use a 70:20:10 approach to develop our employees. Under this approach employees obtain 70% of their development from job-related experiences, 20% from interactions with others, and 10% from formal interventions or educational events.

We believe that this approach will ensure we maximise the effectiveness of staff learning and growth through various activities, inputs and experiences working with, rather than against, the best learning methodologies.

TransformationBankservAfrica is committed to an inclusive culture that respects and embraces the diversity of employees, customers and communities. We attract, develop and retain the most capable employees from all ethnicities, races, genders, sexual orientations, beliefs, backgrounds and experiences believing that diversity assists us in understanding and being responsive to our operating context.

Employment equity

Male Female

Description A C I WSub-

total A C I WSub-

total Total

Top management 3 1 1 8 13 2 0 2 2 6 19

Senior management 4 9 7 28 48 4 2 2 14 22 70

Professional 23 13 9 15 60 20 4 3 15 42 102

Skilled 34 22 8 10 74 24 12 4 8 48 122

Semi-skilled 18 4 0 0 22 11 1 1 0 13 35

Unskilled 47 8 0 0 55 65 8 1 1 75 130

Total permanent 129 57 25 61 272 126 27 13 40 206 478

A = African C = Coloured I = Indian W = White

Human Capital (continued)

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Performance management and remunerationWe believe that remuneration plays an important role in the successful delivery of our strategic objectives. Attracting and retaining skilled and experienced employees is central to our remuneration strategy. The cornerstone of this is the concept of pay for performance, within a sound risk management and governance framework, and with due consideration to market factors and our organisational values.

We link employees’ remuneration to their performance and behaviour at all levels and across all divisions. This takes into consideration a host of factors such as group performance, divisional performance and the employee’s individual performance. Target-based incentive schemes are used. Remuneration is based on market-related remuneration in similar roles.

Performance against targets is managed twice a year. This is done using a new automated process which forms part of the wider talent management system. The performance system aligns individual contribution (through contribution plans) with the corporate and departmental scorecards.

A new incentive programme was implemented in July. The incentive programme is comprised of an individual incentive, which applies to all employees; and a corporate incentive, which is allocated to key individuals involved in the key strategic goals of the company.

Looking ahead, we will be concentrating on creating a people DNA that focuses on establishing a leadership framework, ensuring our culture is clear and embedded in the business. We will also be developing a framework for engagement that supports the behaviours of our core purpose and strategy.

COLLABORATION: BankservAfrica’s success is tied to the success of its members and customers working together to build mutual digital infrastructure that connects economies.