SA to implement stricter regulations for payments industry

The South African Reserve Bank (SARB) has announced plans to tighten regulations in the country’s payment ecosystem, citing the need for financial stability in the face of disruptive and innovative technologies.

The move comes at a time when fintechs and virtual banks are increasingly taking up more market space, despite their tendency to take on more risk than traditional banks due to their ability to scale up rapidly.

According to the International Monetary Fund, though stricter regulations may make it more difficult for new players to enter the market, it is necessary to regulate payments as an essential service that enables economic activity.

Andrew Springate, CEO of tech and financial gateway service provider PAYM8, notes that while newcomers may feel that the payments landscape is over-regulated, compliance is necessary to prevent chaos in a vital industry.

He also mentions that several provisions have been made to assist new financial services companies, including the Intergovernmental Fintech Working Group’s sandbox initiative, where newcomers can test services from a regulatory perspective.

However, Springate also acknowledges some negatives that need to be addressed, such as the fact that growth usually favours incumbent brick-and-mortar banks with entrenched systems, and new fintechs need a sponsoring bank to apply for a third-party payment processing platform.

Despite the challenges, Springate says the country’s fintech and payment space is largely making positive strides.

South Africa is a world leader in authentication of debit orders and in interoperability between ATMs from different banks, for example.

Springate adds that South Africa seems to be following the UK’s regulatory initiatives when it comes to payment regulation, albeit at a slower pace, which he sees as a good thing. It is a complex country with many diverse cultures, and it is facing difficult challenges such as an energy crisis, a large unbanked population, a weak economy, crime, and corruption. Therefore, careful consideration is necessary before implementation.

The SARB has recognised the need to include non-banks in the payment system, as per their NPS Act review and Vision 2025 document. Springate believes that such inclusion and collaboration are key to accelerating movement in the industry.

Banks are realising that they need to partner with fintechs to move forward at a pace that is comparable to their competitors. To do this, some banks need to be more receptive to fintechs, new ideas, and new ways of doing things. Fintechs, too, need to participate in that and help them move a little faster.

Springate concludes that while some new fintech players may be concerned about the proposed stricter regulations in the payments ecosystem, it is a necessary move if South Africa wants to keep up with international trends and ensure financial stability. It is important to regulate payments thoughtfully as an essential service that enables economic activity.

Although there are challenges to overcome, the country’s fintech and payment space is largely making positive strides. Inclusion and collaboration between banks and fintechs are key to accelerating movement in the industry, and everyone has a role to play in shaping South Africa’s payments industry.

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