The South African National Payment System in context Walter Volker - PowerPoint PPT Presentation

The South African National Payment System in context Walter Volker Investment Symposium CEO Wits Business School Payments Association of 24 October 2017 South Africa (PASA)

Agenda Section 1 The National Payment System and its role players Section 2 Payment system size and trends Section 3 Payments and the economy Section 4 Forces changing payments Section 5 Opportunity or disruption? Section 6 Q & A 2

Section 1 The National Payment System and its role players

What is the NPS? ALL payment systems in South Africa Formal NPS • Consisting of open, interoperable payment systems which are cleared through regulated clearing participants and settled in central bank money • About 19 payment systems • Total settlement value of over R118.1 trillion per annum Informal NPS • Consisting of numerous “closed loop”, proprietary payment systems 4

PASA and the South African Payments landscape PASA (established in 1996 and formally PASA Mandate recognised in 1999) fulfils a delegated regulatory role… Members 33 The South African Reserve Bank derives its PSOs, [VALUE] mandate and power to establish, conduct, monitor, regulate and supervise payment, Mission clearing or settlement systems from section 10(1)(c) the South African Reserve Bank, 1989 TPPPs To manage and develop (Act 90 of 1989) (SARB Act). 195 the NPS and facilitate integration with international payments • Maintain safe and efficient NPS “infrastructure” SOs, 95 • Stimulate, encourage & facilitate the development of new infrastructure” • Protect a critical ‘common’ public asset Banks PSO's SO's TPPP's • Currently only the banks and designated clearing system participants are members of PASA. PSO’s and SO’s are authorised by PASA and TPPP’s are registered with PASA 5

The “Onion Ring” Stakeholders in the NPS Intensity of regulation increases from outer to inner core Customers Third Party Payment Providers (TPPPs) Payment Service Banks and non-Banks Providers Payment Service Providers Banks or non-Banks Clearing Participants Banks or Designated Clearing Participants Retail Corporate Settlement Participants RTGS (SAMOS) PSO SO Payment Enablers/ SO Infrastructure Providers SO

Section 2 Payment system size and trends

Monthly settlement values through SAMOS SA Payments Landscape - Wholesale vs Retail Trillions R 10 R 12 R 14 R 0 R 2 R 4 R 6 R 8 8 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Settlement values - 10 year history Jul-10 Oct-10 Jan-11 Apr-11 RTL Jul-11 Oct-11 Jan-12 Batches Apr-12 Jul-12 Oct-12 Jan-13 Total Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17

SA Payments Landscape - Wholesale vs Retail Annual settlement values through SAMOS As at September each year R140 Trillions R120 R100 R80 R60 R106.87 R105.43 R94.01 R81.19 R40 R67.96 R66.35 R65.22 R59.52 R58.70 R55.20 R20 R0 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 RTL Batches 9

SA Payments Landscape 2017 RTC EFT Credit 0.4% 14.5% The NPS EFT Debit [CATEGORY 11.5% NAME] Annual 9% AEDO Retail 0.4% Card Volumes 56.2% Retail Volumes NAEDO 4.3% ATM 12.5% Cheque 0.2% R118.1 Trillion settled through RTGS annually Card RTC Cheque EFT Debit ATM 7.3% 2.4% 1.7% 7.0% 1.1% [CATEGORY AEDO NAEDO NAME] 1.3% 0.1% 91% Annual Retail High Value Retail Value Retail Values 95% Settled during Day 5% Settled during Night window EFT Credit 79.0% 10

SA Payments Landscape Growth in payments streams – 2010 to 2016 Volume Value Volume Value R8.5 Trillion R752.9bn 516m 410m CAGR CAGR EFT Credits 3.2% EFT Debits 4.1% 407m 329m R4.8 Trillion R565.9bn R255.2bn R118.9bn 15m 153m CAGR CAGR 30.9% RTC NAEDO 5.9% 3m 102m R38.9bn R52.4bn R15.6bn 13m 42m R938.6bn 8m CAGR Cheques CAGR 7.6% AEDO -22.2% R139.2bn 7m R6.3bn 2bn R784bn R181.9bn 446m CAGR CAGR 14.8% Cards 5.8% ATMs 763m 302m R305bn R91.2bn 11

Section 3 Payments and the economy

The NPS as an enabler of economic activity GOVERNMENT FIRMS ( SUPPLY GOOD & SERVICES) HOUSEHOLDS - CONSUMERS GLOBAL MARKETS 13

The NPS as an enabler of economic activity cont. Properly functioning payment systems serve to “oil the wheels” of the economy: • Enhance stability of the financial system, • Reduce transaction costs in the economy, • Promote efficient use of financial resources, • Improve financial market liquidity and the velocity of money, and • Facilitate the conduct of monetary policy. 14

Section 4 Forces changing payments

Forces changing payments Digitisation Competition Fragmentation Commoditisation Change in Regulation 16

Digitisation Growing number of form factors 17

Digitisation cont. • Proliferation of new devices and channel options • Growing number of digital payment solutions 18

Competition 2017 • 33 Members New entrants 95 SOs • Growing non-bank participants 195 TPPPs • Fragmentation of the value chain 2013 100 SOs & TPPPs 25 Members 2008 < 10 SOs and TPPPs < 23 Members 19

Regulation Increased regulation FSR Bill COFI Bill NPS Act POPIA  Bill passed by National  PASA EXO is part of a  Two members of PASA  Information Regulator has published its 5 year Assembly on 22 June workgroup established EXO are part of an Expert 2017. by NT considering Group reviewing the NPS strategic plan. conduct issues. Act.  Awaiting signature by the  Priorities are  A draft policy document President before Regulations, Codes,  Bill is expected in quarter stakeholder engagement, becoming an Act. is being considered at 4 of 2017. present. analysis of legislation impacting on its operating environment. AC Directive CMA Directive FATF Directive Cybercrimes/security Bill  Bill was published on 3  Directive was published  Published on 30 May  FIC Ammendment Act 1 July 2017 for comment. on 23 June 2017. 2017. of 2017 - Risk based approach  Comment  ‘Implementation  All cross border low is being plan’ collated by PASA for discussed in the Directive value EFT credits to be  Main focus – Compliance submission on 10 is that as agreed with the passed through SADC Recommendation 16 August. SARB on 2016 RCSO by 1 July 2018  FICA focus – customer due diligence  Managing i.t.o. FIC Act 20

Regulation More inclusive regulatory framework • Banks • Designated non-banks • PCH System Operators Tiered membership Fintech • System Operators Open Banking Payment Service Providers • Third Party Payment Providers Appropriate level of • User Associations Regulation vs Risk • Consumer Representative bodies 21

Section 5 Opportunity or disruption?

Conclusions 1 Formal NPS has a tremendous capacity to absorb new channels, devices and form factors, as well as new entrants in the value chain 2 Unlikely to have fundamental disruption of the basic card or electronic “rails” in the short to medium term 3 Innovation concentrated around devices & channel options, customer interface, authentication 4 Proprietary, closed loop payment solutions unlikely to succeed 5 Sometimes under-served pockets of inefficiency are exploited and enhanced e.g. PayPal 6 Blockchain/ Distributed Ledger/ Cybercurrencies still immature and in an experimental/ hype phase 23

Section 6 Q & A