People 'n' Issues

SA Reserve Bank gets behind payment innovation

July 28th, 2016
The South African Reserve Bank has thrown its weight behind local payment industry innovation and development, as the industry braces for a “time of unprecedented change”.
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Speaking at the 2016 Payments Association of South Africa (PASA) International Conference, Deputy Governor of The South African Reserve Bank (SARB), Mr. Francois Groepe, said that the industry is entering a new phase in the South African payment and financial regulatory environment, in a time of significant changes to the international regulatory architecture and framework.

The SARB, who has processed payments in the region of R100 trillion in 2016 – three times the GDP of the country – announced that South Africa will have new, far-reaching and overarching, financial sector legislation by the end of 2016. “From a payment system perspective, it will include the introduction of new and more comprehensive regulations as well as expanded oversight and supervision by various regulators,” said Mr. Groepe.

The Deputy Governor declared that the national payment infrastructure is critical and systemically important given the important role it plays within our financial system and the implications of any potential failure for financial stability.

Addressing traditional Financial and Fintech industry leaders, Mr. Groepe stressed the need for cohesion in an effort to bolster an industry under attack from fraudsters. “SARB will interact with all participants in this environment to ensure that the necessary attention and priority is given. Together, we also aim to improve the levels of innovation as well as the safety and soundness of the national payment system and, going forward, also that of all systemically important financial market infrastructures.”

Payment stakeholders welcomed the boost from the country’s top regulator, echoing the need for holistic collaboration and the stimulation of innovation that keeps the customer safe, so that they can benefit from the convenience of technological advancements.

Leading payments provider, PayU, hailed the announcement, saying that the industry in SA is laden with exciting talent pushing for opportunities. Johan Dekker, Head of payments in Africa at PayU EMEA, said, “This is good news for the industry. We see growth in our European and other African markets driven primarily through innovation, facilitated by unity between the industry and regulators.”

The announcement by the SARB coincides with a number of technological innovations that are poised to affect South Africans in the coming months. These have been in operation in various stages in other markets and include biometric authentication and tokenisation.

Samsung Pay’s meteoric growth to 500 million global users in just six months shows the power of paying simply by being authenticated through your unique characteristics.

On Tuesday, PASA announced a new standardised specification to facilitate biometric authentication on payment cards. Working in partnership with Mastercard and Visa, this technology framework is designed to ensure open interoperable solutions in South Africa. The specification enables a range of biometric solutions, from fingerprint verification to palm, voice, iris, or facial biometrics.

Tokenisation – which is the process of replacing sensitive account number data with a unique string of numbers that cannot be used to make transactions – has already hit its straps as the emerging data security standard. Although, like most transformative technologies, it is widely expected to morph into further disruption as it evolves.

“Much of the focus in the industry at the moment is essentially about taking the friction out of the purchase, while keeping it secure, and achieving this as quickly as possible. However, with fast-changing technology and the inevitably more demanding customer, it is important that all checks are in place,” says Johan Dekker.

While the Fintech and Banking industry is providing many exciting opportunities, it should be balanced by efficiency, safety and financial stability considerations. 

Cautioning against over-reliance on the regulator, Mr. Groepe added, ”It is not the role of regulators to hamper innovation, but the SARB is jointly responsible for financial stability, which includes aspects such as cybersecurity, infrastructures, and a safe and efficient financial system. We therefore need to strive towards achieving a healthy balance when we respond to these developments.”

What is evident, though, is the central bank’s commitment. “Executives should no longer ignore the importance of the national payment system and its infrastructure, or the risks and threats (e.g. that of cybersecurity) in this environment. Payment systems and related matters need to be elevated from the back office to the boardroom. This has happened at the SARB and other central banks,” says Mr. Groepe.

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