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August2017
RegionalPaymentsIntegration,FinancialInclusion,andRemittancesintheSouthernAfricanDevelopmentCommunity(SADC):ReflectionsonaWorkinProgressElizabethMcQuerry&CiciNorthup,GlenbrookPartners
2
Introduction
OverviewofSADC
FinancialInclusionintheSADCRegion
ThePaymentsProjectandtheSADCBA
LayingtheFoundation:High-ValuePaymentsandSIRESS
Low-Value,High-VolumePayments,andMPSPIntegration
Reflections
Conclusion
References
Contents
3
IntroductionImprovedavailabilityofaffordabledigitalfinancialservicesisapressingneedindevelopingeconomies.Thisneedis
alsoacuteforcross-borderpayments,bothgenerically,andforthegrowingnumberofregionalintegrationefforts
suchasthePaymentsProjectunderwayintheSouthernAfricanDevelopmentCommunity(SADC).Thiswhitepaper
providesathird-partyperspectiveontheSADCPaymentsProjecttodatetoincorporatelow-costremittances.The
outcomesareinsightfulnotonlyforthoseinterestedintheSADCregion,butalsoforotherregionsthatare
contemplatingasharedpaymentssystem.
TheSADCPaymentsProjectisnotthefirstregionalpaymentsintegrationeffortnorthemostambitiousinscope.
Nevertheless,itisachallenginginitiativeifonlyforthevastdifferencesinpaymentssystemdevelopmentamongthe
participatingcountries.Additionally,thereareothernotablecharacteristicsatplay:Theinitiativeisatop-down
mandateimplementedbytheprivatesector,thereisasharedindustryutilityoperatingwithmultilateralrules,
multiplepaymentstreamsareundercontemplation,andbothbankandnon-bankprovidersofpaymentservicesare
participants.Thecombinationofthesefactors—alongsidethefinancialinclusionobjectives—mostcertainlyqualifies
theSADCregionalpaymentsinitiativeasanoteworthyundertaking.
Thiswhitepaperattemptstosharekeydevelopmentsandprovideaninitialdiagnosticoftheeffectthatcertain
choiceshavemadeinshapingtheprogressandinterimoutcomesofthePaymentsProject.Theimpactandresultsof
theSADCinitiativewillmostcertainlybeofinteresttothegrowingnumberofregionalgroupingsthatarecurrently
onthejourneytopaymentsinteroperability;namely,ajourneytointegratingnon-bankpaymentprovidersintothe
formalpaymentsystem,andtoexploringoptionstobuildpaymentsystemvolumeandscale—withtheendgoalof
increasingfinancialinclusion.
Theseobservationswereformedduringtheauthors’involvementintheSADCeffort.Thissupportwasfundedbythe
Bill&MelindaGatesFoundation,buttheviewsandopinionsareentirelythoseoftheauthors.
4
OverviewofSADCSADCcomprises15MemberStates:Angola,Botswana,DemocraticRepublicofCongo,Lesotho,Madagascar,Malawi,
Mauritius,Mozambique,Namibia,Seychelles,SouthAfrica,Swaziland,Tanzania,ZambiaandZimbabwe.Accordingto
theWorldBank,thetotalpopulation(asmeasuredin2014)wasjustover300million.
In1992,MemberStatessigned
theSADCTreatycommitting
theregionalgrouptowork
togetherto:
Achievedevelopmentand
economicgrowth,alleviate
poverty,enhancethestandard
andqualityoflifeofthepeople
ofSouthernAfrica,andsupport
thesociallydisadvantaged
throughRegionalIntegration.
TheSADCTreatyisthebasisforarangeofeffortstobringaboutsustainable,collaborativedevelopmentinseveral
importantareas—includingfinancialservices—withtheultimategoalofpovertyeradication.Itwasagainstthis
backdropthattheSADCBankingAssociation(SADCBA)wouldultimatelylaunchaninitiativecalledthe"Payments
Project"tocreateaninteroperable,regionalpaymentsplatformthatwouldreducecross-borderpaymentriskand
drasticallylowertransactioncosts.
FinancialInclusionintheSADCRegionCross-borderremittancesintheSADCregionarecommonplace.AccordingtoFinMarkTrust,annualcross-border
remittancestotal$11billionUSD.However,thesetransfers—astheyexisttoday—arelargelyinformaland/or
expensive.Only36%oftheSADCpopulationisconsideredbankedwithanadditional18%havingaccesstoother
formal(non-bank)financialservicesand12%havingaccesstoinformalmechanisms.Withanadultpopulationof
approximately125million,thisexcludesmorethan41millionpeople.Asaresult,manydonothaveaccesstoformal
mechanismstosendcross-borderremittances,andinstead,leverageinformalchannelsthatareoftenslowandrisky.
AccordingtoFinMarkTrust,only2%ofremittancesinSADCaresentthroughofficialbankingchannels;nearly70%
aresentviabusortaxi,20%aresentbackwithvisitingfamilyorfriends,androughly8%throughotherchannels.
5
Forthosewhocanorchoosetoleverageformalcross-bordertransferchannels,thecosttosendremittances
withintheSADCregionishigh.Forexample,SouthAfricaisrecognizedasatopcountryoforiginforremittances
intheregion,andaccordingtotheWorldBank,thecostofsendingformalremittancesfromSouthAfricatoother
SADCcountriesismorethandoubletheglobalaverage.Thismeansthatforeverydollartransferred,nearly17cents
(16.8%)isconsumedasatransactioncost.Bycomparison,theaveragecostofsendingatransactionintherestofthe
worldisonlyeightcents(7.7%).Moreover,mostcorridorswithintheSADCregionarewithinthetop20most
expensivecorridorsmonitoredbytheWorldBank.
Asaresult,anopportunityexiststoincreasefinancialinclusionintheSADCregion—avisionsupportedby
organizationsgloballythatareoutliningbestpracticesanddrivingmomentumaroundthisgoal,includingtheWorld
Bank,BankforInternationalSettlements(BIS),theGSMAAssociation,CenterforGlobalDevelopment(CGD),the
InternationalTelecommunicationsUnion(ITU),andtheG20.
ThePaymentsProjectandtheSADCBATohelpachieveaspectsoftheSADCTreatyobjectives(outlinedonpage3)andleverageregionalopportunities,
theSADCfinancialindustrylaunchedamulti-phase,regionalpaymentsinitiativein2010.ThePaymentsProjectwas
designedtoenhancefinancialmarketinfrastructuretobettersupportinter-andintra-regionaltrade.Atthecoreof
thisinitiativearetwokeyconcepts:interoperabilityandthecooperativespace.
Interoperabilityofthenewpaymentssystemservestobringallthecountriesandtheirbankstogetherusingthe
sameplatformtoexchangepaymentsacrossborders.Thecooperative(ornon-competitive)spacereinforcesthe
sharedaspectsoftheplatformbyfocusingeffortsonthedevelopmentofindustryimprovementsthatplayersinall
thecountriescanleverage.
Theend-statevisionfortheregionalpaymentsinitiativeisaseriesofoptionsforbanksandtheircustomersinthe
15countriestosafelyandsecurelytransactelectronically.Theinteractionbetweentheseregionalpayments
optionsinthecooperativespace,andthecommercialactivityonthesendingandreceivingends,isillustratedin
thediagrambelow:
6
Justasdomesticpaymentssystemsdefinepaymenttypesandusagerequirements,theSADCBAneededtodefine
operationalspecificationandbusinessrulesforparticipantsinthenewcooperativescheme.ThePaymentsProject
definedfivepaymentsstreamsinthecooperativespacethatwouldbeenabledinthenewscheme:
1 PRIORITYPAYMENTS:Paymentsthateitherabankortheinitiatorofapaymentprioritizeoverotherpaymentstheyareinitiating.Prioritymaybegrantedforavarietyofreasons,suchasriskmitigationoravailabilityofliquidity.Thesetime-sensitivepaymentsareoftenreferredtoaswires.
2 CREDITTRANSFERS:Paymentinstructionsfromanoriginatortosendfundstoabeneficiary.Credittransfersarenon-urgentpaymentsthatareoftenprocessedinovernightbatchesviaautomatedclearinghousesandaresometimesreferredtoaselectronicfundstransfers(EFT)orpushcredits.
3 DIRECTDEBITS:Theend-to-endprocesswherethepartyreceivingthefundssendsaninstructiontorequestfundsfromthepayer.Directdebitsaretypicallyusedforcollectionsorbillpayments,andareoftenreferredtoaspullpayments.
4 CARDPOSTRANSACTIONS:Transactionsdoneatadeviceallowingtheuseofpaymentcardsataphysical(notvirtual)pointofsale.Thepaymentinformationiscapturedeithermanuallyonpapervouchersorbyelectronicmeans.
5 CARDATMTRANSACTIONS:Transactionsusinganelectromechanicaldevicethatallowsauthorizeduserswithmachine-readablecardstowithdrawcashfromtheiraccountsand/oraccessotherservices.
TheschemeleveragesISO20022paymentsmessagesandSWIFTmessagesforthecommunicationofsettlement
instructionsbetweenthebanks.Attheoutsetoftheproject,thelevelofexperiencewiththeseglobalstandards
acrossparticipantsandcountriesvariedwidely.EuropeancountrieswereadoptingISO20022messages,butithad
notyettakenholdinothercountries.
Thedifferentpaymentsstreamsandactivitiesallfallunderaformalgovernancemodel.Theoveralldirectionofthe
PaymentsProjectisdefinedbycentralbanksandimplementedbyprivatesectorplayers.Specifically,theCommittee
ofCentralBankGovernors(CCBG)setstheagendaforregionalactivitiesandtheSADCPaymentsProjectisan
initiativeoftheCCGB.
Inturn,theSADCBAworkswithmembercountriestorealizetheobjectivesofthePaymentsProject.Eachmember
countryappointsabankingrepresentativewhoisresponsibleforembodyingthesharedandcollectiveinterestsof
thecountry’sfinancialindustryandcontributingtotheSADCcommunityonitsbehalf.Itistheresponsibilityofthe
SADCBAtoworkwithmemberrepresentativestobalancecompetingprioritiesandcollaboratetowardsshared
goals.Notably,theCCBGcontinuestoplayanactiveroleinguidingthePaymentsProjectanditsactivities.
7
Oneimportantelementofthegovernancemodelwasthedevelopmentofamandateandkeyprinciplesattheoutset
oftheproject.ThemandatedefinesthescopeandguidestheactivitiesoftheSADCBA,whilethekeyprinciplesare
thehigh-level,operationalparametersoftheSADCpaymentssystem.Boththemandateandkeyprinciplesfocuson
thedevelopmentoftheregionalpaymentssystem,notablyseparatingoutdevelopmentsincountrypayments
systemsfromtheSADCregionalpaymentssystem.
MANDATE KEYPRINCIPLES
WorkswithcommercialbankstoinformdevelopmentoffinancialmarketinfrastructureinsupportofSADCframework.
Eachcountrymaintainsitsowncurrency.
Definespaymentsinstruments,businessrules,andmessagingstandardsforinterbankuse.
Eachcountrymaintainsitsnationalpaymentandsettlementinfrastructurefordomesticclearingandsettlement.
DevelopsSADCsinglepaymentsarea. Transactionssettleinacentralsettlementsystem:SIRESS.
Definesandimplementsregionalstandards. SettlementparticipantsholdsettlementaccountsinSIRESSforintra-regionalcross-bordertransactions.
Establishes—throughresearch—whichpaymentinstrumentsareappropriate.
Settlementaccountsoperateonapre-fundedbasis.
Promtoesdevelopmentofinteroperablesystems. Settlementcurrencyforintra-regionaltransactionisinSoundAfricaRand(ZAR).
Eachcountryorganizesparticipationthroughitsownbankingassociation
Clearingandsettlementinfrastructureisbasedonasoundlegalbasis,ensuringfinalityofsettlementobligations.
OperatinghoursarebasedontheCentralAfricanTimeZone.
LayingtheFoundation:High-ValuePaymentsandSIRESSInJuly2013,SADCdefineditsprioritypaymentsstreamandlaunchedahigh-value,bank-to-bankpaymentssystem
acrossborders.Theexchangeofprioritypaymentsnecessitatedtheneedforasettlementmechanismwherethe
valueofthetransactionsisrecordedandfinalizedbetweenthecounterpartiesinthedifferentcountries.
Asseeninthediagrambelow,theSADCIntegratedRegionalElectronicSettlementSystem(SIRESS)isthefoundation
ofthePaymentsProjectandenablesreal-timesettlementamongthebanksandtheircustomersinthe15countries.
ParticipantsholdsettlementaccountsinSIRESSforintra-regionalcross-bordertransactions.SIRESSisoperatedbythe
SouthAfricanReserveBank,onbehalfoftheSADCmembercountries,andallpaymentsaresettledinRand.The
sharedsettlementplatformservestocreateacommondenominator(i.e.,themostutilizedregionalcurrency)among
thecountriesandreducesriskbysimultaneouslysettlingcross-bordercreditanddebitobligationsbetweenbanks.
8
Therolesandresponsibilitiesofalltheparticipantsaredescribedinacommonreferencemanual,whichalsooutlines
thedifferentoperationalprocesses,includingwholesalepaymentsaswellasotherpaymentstreams.Thismanual,
calledthe"BeigeBook,"containsallschemedocumentationandmaterials,includingrules,governance,participant
requirements,messageformats,andflowsforthefivepaymenttypes.
Afteraslowstart,eachcountryunderwentthechallengingjourneyofensuringitssystemsreachedthequalifying
levelneededtojointheregionalpaymentssystem.Ultimately,thehigh-valuepaymentsschemewasproved
successfulandisnowwidelyused:AsofApril2017,14countrieswereparticipatingwith83financialinstitutions,
includingcentralbanks.SIRESShassettledatotalof733,597transactionsatavalueof$244.74billionUSD.
Oncethisfoundationwasinplace,theSADCBAturneditsfocustothenextphase:thedevelopmentofaregional,
low-valueretailpaymentssystem.Theretailpaymentsmessagescontaineddifferentcharacteristicsandservice
levels,butstillrequiredutilizingSIRESSasthecommonmeanstosettlecross-bordertransactions.
Low-Value,High-VolumePayments,andMPSPIntegrationThenextphaseofSADC'sworkfocusedonextendingtheprioritypaymentssystemtoenableintra-SADCcredit
transfers.Aroundthissametime,theneedtoimproveregionalremittances—whichasnotedpreviouslyarecostly
andoftenclearedoutsideoftheformalpaymentsystem—becameevenmoreurgent.
Otherchangestakingplaceinthemarket—thelarge-scaleadoptionofmobilephonesandtheexpandingpresenceof
Telcosubsidiariesintomobilemoneyservices—providedpowerfulincentivestodeterminehowtobringnon-bank
providersintothebank-basedretailpaymentsprojectinordertomorequicklyachievetheobjectivesofloweringthe
costofremittancesandincreasingfinancialinclusion.Financialinclusionwasalsoassumingaprominentpositionon
theregionalpolicyagenda,andby2013,theSADCBAbegantakingstepstoutilizethepaymentsplatformtohelp
facilitatetherealizationofthesegoals.
CreditorBank
Debtor (sender)
Beneficiary (receiver)
BeneficiaryBank
SIRESSSender could fund
transaction from bank account
Banks can serve as the sender’s
financial institution
Banks can serve as the receiver’s
financial institution
Beneficiary can receive funds into
bank account
SADC settlement platform to credit and debit transactions
between members
9
Today,intheSADCpaymentsscheme,authorizednon-bankprovidersoffinancialtransferservicesarereferredtoas
MobilePaymentServiceProviders(MPSPs).Additionally,paymentprocessingserviceproviders(PPSPs)areapartof
thescheme,andcanactonbehalfoftheMPSPinvaryingways.
Exchanginglow-valuepaymentsamongparticipatingfinancialinstitutionsinthe15countriesrequiredthe
introductionofaclearingmechanism.Inadditiontoclearingpaymentmessagesbetweenparticipants,theRegional
ClearingandSettlementOperator(RCSO),shownintheflowdiagram,talliessettlementinstructionsfromtheretail
paymentsandcommunicatesthecreditanddebitinstructionstoSIRESS.TheroleoftheRCSOiscarriedoutby
BankServ,theSouthAfricannationalpaymentsservicesprovider.
Oneelementofthegovernancemodelwasthedevelopmentofamandateandkeyprinciplesattheoutsetofthe
project.ThemandatedefinesthescopeofactivitiesandguidestheactivitiesoftheSADCBA,whilethekeyprinciples
arethehigh-level,operationalparametersoftheSADCpaymentsystem.Boththemandateandkeyprinciplesfocus
onthedevelopmentoftheregionalpaymentsystem,notablyseparatingoutdevelopmentsincountrypayment
systemsfromtheSADCregionalpaymentsystem.
Creditor Bank or MPSP
Debtor (sender)
RCSO
Beneficiary (receiver)
BeneficiaryBank or MPSP
SIRESS
Sender could fund transaction from bank
or mobile wallet account
Banks or MPSPs can serve as the
sender’s financial institution
Regional Clearing and Settlement operator (or ACH) carrying out bank
instructions
Banks or MPSPs can serve as the
receiver’s financial institution
Beneficiary can receive funds into
bank or mobile wallet account
SADC settlement platform to credit and debit transactions
between members
PPSPPayment Processing Service Providers
(PPSP) can act on behalf of MPSP
10
Bringingnon-bankproviders,whoarenotapartoftheSADCBAorganizationalstructure,intothepaymentscheme
topromote“mobile-enabled”creditpushtransfers,alsobroughtabouttheneedtoengagetheMPSPsinthe
processaswellastoexaminetherules,regulations,ortechnicalapplicationstodeterminewhethermodifications
wouldbeneeded.Themovetoalignaswellascombinebankandnon-bankeffortsmarkedasignificantinflection
pointintheproject.
Ofcourse,mobileisnotapaymentsystem,butratherachanneltoreachsendingandreceivingendusers.
Nevertheless,becausebanksandtelcosystemsandbusinessmodelstendtobedifferent,itwasnecessarytodefine
howthetwoplayerswouldinteractinthenewpaymentstream.Itwasnotablethatinsomeoftheearlydiscussions
theMPSPshadnotbeeninthesameroomwiththeirindustrycompetitorsandthiswasthefirstinstancewhere
banks,mobilemoneyproviders,andregulatorswerecollectivelydiscussingopportunitytocollaborate.
Tohelpkickoffthisopportunityandengagenon-banks,theBill&MelindaGatesFoundation,togetherwithglobal
partners,includingFinMarkTrust,GSMA,andtheWorldBank,agreedtosupportaseriesofthreeregional
conveningsfollowedbyafinalcollaborationconveningdesignedtobringtogethercriticalstakeholders—regulators,
banksandmobilenetworkoperators—foraninteractivedialogueonhowtofurtherdigitalfinancialinclusion
amongthe15membercountriesusingtheSADCpaymentsframework.
Theprimarygoalswereto:
• EducatekeystakeholdersabouttheSADCpaymentmodel• Understandanyissuesthatneededtobeaddressedinorderforthevariousstakeholderstoengageinan
SADC-widecreditpushpaymentscheme• Determineroles,responsibilities,andnextstepsforapossibleSADCmobilepaymentspilot
Theconveningswerecompletedinlate2015withthestakeholdersreachingagreementtodrivetheinitiative
forwardasseenbelow:
CreditPushPaymentsStreamScheme CreditPushPaymentsStreamObjective
Therulesandsupportingframework(e.g.,regulatory,operational,technical)enableaffordable,low-valuecreditpushcross-borderpaymentsacrosslicensedpaymentserviceprovidersintheSADCregionlinkingtotheSIRESSsettlementsystemforSIRESSsettlementcurrenciesandotherauthorizedsettlementmodels.
Tovalidateandrefinetheschemewithmorethanonecountryandmorethanoneprovidertomoredeeplyunderstandthecharacteristicsofascalable,sustainablescheme.
11
20102011-2012
20132014
20152016
2017
Testing/ProofofConcepts
LowValueDevelopment&StakeholderAlignment
StakeholderEngagement onLowValuePayments
SADCBAPaymentsProjectKickOff
Workstreamdevelopment–mainfocusonPriorityPayments
Launch:SIRESS&PriorityPayments
AdditionalCountryOnboarding;WorkStreamsContinue
Lowvalue,cross-bordertransferdevelopment2015- Current
Fiveworkinggroupswereestablishedinordertomeettheobjective,ensurecontinuedengagementbybanksand
non-banks,andoutlinethecorrespondingrules,regulations,andtechnicalneeds.
WORKINGGROUP KEYTOPICS
Regulatory ConsumerProtection,BoPReporting,Governance,HarmonizedRegulatoryGuidelines,AML/KYC
Operational OperatingModel,OperatingRules,RiskManagment
Technical Security,MessagingStandards
CommercialModel PricingReviewandPrinciples,CostModeling,RegulatoryCosting,MarketingPrinciples
Pilot ImplementationProcess
WorkgroupscomprisedvolunteersfromtheinterestedbanksandMPSPsandmetseveraltimesinpersonandvia
eMeetingsthrough2016andearly2017.Theseinteractionsledtogreaterunderstandingofthekeyconcernsand
challengesofthedifferentgroups.Thekeyrecommendationsoftheworkgroupsareattachedtothiswhitepaperas
anappendix.
Currently(asofAugust2017),theSADCretailpaymentinitiativeisinthemidstofaseriesofproof-of-concept
phasesdesignedtotesttheplanningtodateandensureparticipantreadinessforthestartoflivepaymentsina
controlledpilotinearly2018.Therearemorethan40participatinginstitutions—bothbanksandMPSPs—
representing14outof15countries.Thislevelofearlyengagementreflectsthestrongparticipantinterestin
improvedoptionsforretailfinancialservices.Itisalsoatestamenttothefoundationalworkandinstitutional
developmentoftheSADCPaymentsProject.Thetimelinebelowillustrateshowthelow-valuepaymentstreams
buildsontopoftheworkonthehighlevel.
12
ReflectionsGiventhattheSADCPaymentsProjectisstillworkingtowardsimplementingthelow-valuecredit-pushcross-border
paymentsstream,itisprematuretomakeanydefinitiveobservationsaboutlessonslearned.Whatwecanreflecton,
however,ishowkeychoiceshaveshapedtheprogressandinterimoutcomestodate.
BelowwebreakdownsomekeyelementsoftheSADCpaymentsschemeasawaytoexaminetheireffectonthe
goalsofreducingthecostofcross-borderremittancesandincreasingfinancialinclusion.Wealsoassertthatthe
progressachievedtodatewouldlikelynothavebeenachievedifaformalpaymentsschemehadnotbeenin
place.Still,itisimportanttonotethatacriticalenablingelementcanhavecross-cuttingeffects:Afactorcan
haveadecidedlypositiveeffectinonearea,whilealsoinsertingapotentiallynegativeorevenuncertaineffect
inanotherarea.
Fromtheoutset,theSADCmodelattemptedtochannelinputfrombanksineachofthe15countriesthroughthe
domesticbankingassociation.Thisrequiredallofthebanksineachcountrytodeterminetheneedsoftheir
individualbranchesandoutlinethestepstowardsachievingasharedminimallevelofoperationalreadiness.In
addition,eachdomesticbankingassociationchosearepresentativefortheearlyworkgroups.Theoveralleffectwas
toheightenthecollaborativeandregionalfocusand,atleastwithintheSADCdiscussion,minimizethecompetitive
commercialdiscussion.Theindividualcommercialneedsshouldkickinoncethenewplatformisoperationalinthe
collaborativespace.
ThismodelwasalsoemployedwhentheMPSPsjoinedtheSADCdiscussions.SincetheMPSPsdonothavedomestic
industryassociations,theorganizingconceptfocusedonthecountry-levelpreparationsneededtoparticipateinthe
newretailpaymentsstream.Theabilitytoleverageanestablishedandworkingorganizationalmodelofmultiparty
stakeholderengagementallowedtheprocesstomoveforwardmorequickly.Differentpartieswereallconsultedand
everyonehadampleopportunitytoprovideinputandparticipateinthedifferentworkgroups.Inaddition,the
inclusivenaturehelpedbreakdownperceptionsandfosteredinteractionamongpartiespreviouslyoperatinginsilos.
Inclusionalsoappearstohavefurtheredstakeholderbuy-in.
Theorganizationalmodelprovidedastructuretochannelthevariedneedsandinputfrombankandnon-bank
participantsin15countries.Atthesametime,thecollaborativeaspectofthemodelalsoinsertedacollective
dependencyonthepartofalltheparticipantstoassumethedifferentroles.Sendinginstitutionsneedreceiving
institutions—justasthepaymentsneedaclearingandsettlementmechanism.Putanotherway,thewholecannot
moveforwardwithoutthecomponentparts.Inaclosed-loopsystem,everyrolewouldbecarriedoutbythesingle
owner.Inordertobesuccessful,theSADCmodelneedstoensurecontinuedinterestinallroles.
+ OrganizationalModel
13
EventhoughtheSADCBAwasformedtopromoteregional,cross-borderbankingneedsandthefundingforthe
initiativecamefrombanks,theSADCBAalsowelcomedMPSPsintothelow-valuepaymentsstream.Thishelped
maketheschememeaningfulforbothbanksandnon-bankparticipants.Notsurprisingly,MPSPswouldlikeamore
formalvoiceintheSADCscheme,butthecurrentgovernancemodeldoesnotprovidethat.TheRegulatoryWork
GrouprecognizesthisneedandrecommendstheMPSPsformanindustryassociationtochanneltheircollective
interestsintheSADCdialogue.
TheSADCexperiencehighlightstheimportanceofinclusioninfosteringinnovation,especiallywherediverse
participantsareinvolved.ThereisstillanopenquestionofwhethertheformalSADCgovernancewillincludeMPSPs
asparticipants,investors/owners,and/ordecisionmakers.Theidealbalancewilllikelyvaryineverycontext,but
SADC'ssuccessinmovingthefinancialinclusionagendaforwardsupportsthenotionthataninclusiveapproach
fostersbothcollaborationandparticipantbuy-in.Thechallengenowishowtosustainthisinterestandwhether
governancewillpromoteorinhibitparticipationbydifferentplayers.
Sincethepaymentsschemerequiresdevelopmentandsupport,thereisasmallmanagementteaminplacetosteer
thevariousactivities.Theseindividualshaveprovidedstrongleadershipthathasconsistentlypropelledactivities
forward,broughtalltherelevantstakeholderstogether(includingfinancialservicesprovidersandregulators)fora
shareddialogue,andensuredcontinuedprogresstowardimplementation.
Theteamnotonlykeptthelargerprojectmovingforward,butalsounderstood,inthegeneralsense,howto
integratethenewfocusonremittancesandrevisionsintotheexistingscheme.Somenecessarymodificationswere
evidentfromtheoutsetoftheprocess,includingestablishingthebasisforbringingthenon-bankfinancialservices
providersintotheschemeandrevisingthelow-valuepaymentrulestoensureusabilitybyallparticipants.Strong
leadershipwithalong-termvisionhasbeenessentialtothesuccessfultransitionfromtheoriginalbank-onlyscheme
totheinclusionofMPSPsintheretailpaymentexchange.
TheadditionofphilanthropiccapitalfromtheBill&MelindaGatesFoundationempoweredtheSADCBAteamto
quicklypushforwardthefocusonremittancesandallowedforexpeditedstakeholderengagement.Webelievethis
outsideinterestintheSADCpaymentsschemeonthepartoftheBill&MelindaGatesFoundationandsimilar
organizationsservedasamarket"signal"thatsomethinginterestingwashappening,whichcaughttheattentionof
localparticipantswhootherwisemightnothaveprioritizedtheinitiative.
+ SchemeGovernance
+ Leadership
14
Fromthebeginning,theSADCplanfocusedoncreatinganewpaymentssystemtoservethegrowingcross-border
paymentneedsamongthe15countries.Thenewsystemleveragedmanycurrentbestpracticesinfinancial
services,including:
• Interoperability:makesitpossibleforanyonetopayanyonewithinthescheme
• UseofISO20022standards:XML-basedmessagesareflexibleandadaptable
• Multilateralbusinessrules:sharedservicelevelsdefinetheinteractionsamongparticipatingprovidersand
fosteracommonend-userexperience
• Real-timesettlement:providesthefinalityneededtosettlecross-borderobligations
• Designedforusebymultiplepaymentsteams:morevolumehelpslowercostsoverall
• Stakeholderengagement:openconsultationandinputallowsallpartiestomaketheirviewsknown
Leveragingthescheme—firstbuiltoutforwholesalebank-to-bankprioritypayments—allowedforreuseofmostof
therulesandrailsforretailpayments,potentiallyexpeditingtheprocessandreducingthecostofcreatingadditional
system(s).Evenso,stakeholderengagementrequirestimeandextendsthetime-to-markethorizon.
Theefforttobringcross-borderremittancesintotheSADCpaymentsschemehighlightedkeydifferencesin
regulationsamongthedifferentcountries.Forexample,countriesmayhavedifferentdefinitionsofauthorized
providers,differentlicensingbodies,anddifferentlimitsontransferamounts.Whilenoneofthesedifferencesare
insurmountableobstacles,thevariationshighlighttheneedforparticipantstounderstandandcomplywiththe
differentlegalparametersineachofthe15countriesinwhichtheychoosetodobusiness.
Incontrast,Europe,whichhastheSingleEuroPaymentsArea,hasaPaymentsServicesDirectivethatprovidesa
commonlegalbasistoexchangecross-borderpaymentsthroughoutthearea.RegulatorsintheSADCregionare
evaluatingamodelpaymentslawtopromoteasabaselineforeachcountrytoadopt.Completionofthistypeof
processwillsurelytakealongtime.Intheinterim,cross-borderpaymentswithinSADCwillhaveoperational—
butnotlegalorregulatory—harmonization.
+ IndustryBestPractices
? Regulation
15
ManyaspectsoftheoriginalSADCschemehavetransferredseamlesslyorprovenadaptablewithcertainrevisions.
Perhapsthebiggestgap,fromtherequirementsoftheoriginalschemetoincludingmoreplayersandremittances,
issettlement.ThekeyslearninghereisthattheSADCmodelwasdesignedforbanks—whicharedirectparticipants
inSIRESS—andcannotbedirectlytransposedontothenon-bankparticipants.TheMPSPstypicallyfinalize
transactionsbyusingabankastheirsettlementagentorahubcalled"paymentprocessingserviceproviders
(PPSPs)"whichactsontheirbehalftosettlepayments(aswellasprovideotherneededservices).Additionally,
finalizingtransactionsinanintermediaryaccountnecessitatedtheevaluationofthenewmodelstoensureits
workabilityandsecuritywithinSADC.
ThepresenceofadditionalhubsinthesettlementflowaddscomplexitytotheSADCschemeandperpetuates
inefficienciesinthecurrentsystemofcorrespondentrelationshipsfortheseplayers.Thiswilllikelyhaveanegative
effectonbothliquidityandcostcomparedtotheidealscenario.Theseintermediaryplayerswillbeneededinthe
foreseeablefuturebecausetherearecurrentlynoplanstoallowMPSPstohaveaSIRESSsettlementaccount.
ThesecondcomplicationinthecurrentSIRESSsettlementmodelistheuseoftheRandasthesinglesettlement
currency.Certainly,theRandisthemostwidelycirculatedoftheregionalcurrenciesandisthesharedcurrencyof
theCommonMonetaryAreabetweenLesotho,Namibia,SouthAfrica,andSwaziland.Nevertheless,therequirement
thatallpaymentssettledinSIRESSmustbedenominatedinRandcanaddcostforaremittancebetweencountries
wheretheRandisnotwidelyaccepted.Forexample,atransferfromBotswanatoTanzaniawouldneedtoundergoa
double-conversionfromPulatoRandandfromRandtoSchilling,resultinginacostlylossofvaluetothebeneficiary
andeffectivelyensureanundesirableSADCchannel.Intheshortterm,settlementviacorrespondentbanksis
suggestedfortransactionsnotbasedinRand.Also,planningisalreadyunderwayforSIRESSsettlementtotakeplace
inadditionalcurrencies.
ThethirdareawheretheoriginalSIRESSdesigncomplicateshigh-volumeretailpaymentsisrelatedtoitsoperational
model:Itsettlesinrealtime,simultaneouslyprovidingpaymentfinalitytoobligationsinmultiplecountries,butdoes
notoperatecontinuously.Theimpactforretailpaymentsisthatsettlementobligationspotentiallyincreaseoverthe
courseofthedayandareonlyfinalizedonthemorningofthenextbusinessday.Thereisalsoaliquidityimplication
forMPSPsthatmaylimittheamountoffundstheycantransferorrequireaccesstointra-daycredit.Thisissueis
likelytobecomeaconcernovertime,asmostsuccessfulretailpaymentsexchangesoperate,ataminimum,
throughoutthebusinessday.AnevaluationisunderwayonhowtoincreasetheavailabilityofSIRESSsettlement—a
movethatwouldbringthesystemcloserinlinewiththeevolvingbestpracticeofreal-timesettlementamong
financialserviceproviders.
-- Settlement/SIRESS
16
ConclusionThereflections inthiswhitepaperpointoutanumberofnotabledevelopmentsthathaveoccurredtodate in the
SADCPaymentsProject.Thisboldexperimentinpaymentsinteroperabilitycontinuestoofferinsightintoarangeof
keyquestionsinthepaymentsindustrytoday.Still,itiscertainlyprematuretoofferanevaluationofthesuccessof
theSADCpayments initiative.Onlyaftertheprojectbeginsacontrolledpilotphasein2018andlatermovestofull
availabilitycanwebegintoobservechangesinthemarket.
Atafuturepoint,wehopetoofferadditionalinsightintotheseopenquestions:
• Financialinclusion:WhateffectwilltheSADCpaymentsplatformhaveonthepriceofremittances(andother
cross-border retail payments) in the region? Will the availability of lower cost remittances encourage
consumerstoopentransactionaccountsatthebanksandMPSPsthatoffertheaffordableservices?
• Settlementandriskreduction:Cantheefficienciesenvisionedbythesharedregionalplatformbeextendedto
non-Rand-denominatedpayments?OrcanSIRESSsettlementbeextendedtoothercurrenciesquicklyenough
toovercomethesinglecurrencylimitation?
• Regulatory:Canregulatorsactwithsufficientspeedtoprovide theneededregulatoryharmonizationacross
countries that encourages providers to enter the market without incurring additional costs attributed to
complianceneeds?
• Governance:Will the SADC payments initiative continue to attract participation by both banks and non-
banks?Willthebank-ownedinitiativecontinuetorespondpositivelytoMPSPs'participationorwillchangesin
pricing, investment requirements,or ownershipbenecessary?Willwesee greater industry organizationby
thenon-banksasameanstocollectivelyvoicetheirsharedneedsinthemodel?
References• FinMarkTrust:www.finmark.org.za
• FinScope:www.fimmark.org.za/finscope/finscope-consumer
• SADC:www.sadc.int/documents-publications/sadc-treaty/
• SADCBankingAssociation:www.sadcbanking.org/index.aspx
• TheWorldBank:www.worldbank.org/en/topic/migrationremittancesdiasporaissues/brief/migration-remittances-data