SARB governor urges ‘right’ mix of innovation, regulation

South African Reserve Bank (SARB) governor Lesetja Kganyago urged a delicate balance between innovation and regulation during his keynote speech at the MTN Group Fintech Summit in Johannesburg. Kganyago emphasized the necessity of striking the "right mix" in the payments ecosystem, stating that regulation and innovation are not opposing forces but rather depend on each other.

The SARB governor discussed the challenges in modern payment systems, including the continued use of cash over cards, regulation and trust, as well as merchants refusing to accept credit cards due to associated fees. Kganyago highlighted that payments innovation can only scale sustainably when there is trust, which requires clear, proportionate, and risk-based rules that protect trust without turning into barriers or creating unnecessary burdens for innovation.

He introduced the National Payment Systems Bill, which the SARB is championing. The Bill aims to expand financial inclusion beyond traditional bank-sponsored channels by allowing non-bank payment service providers and fintech firms to participate directly in clearing and settlement. Currently, there are about 400 fintech firms in South Africa.

The upcoming Bill will modernize the statutory framework and offer a more durable legislative foundation for the payments ecosystem. Kganyago explained that the key change involves moving from an entity-based regulatory model to an activity-based regulatory framework. Under this system, similar payment activities should be subject to similar regulatory expectations, irrespective of whether they are performed by a bank or a fintech.

Kganyago emphasized that the industry should adhere to the rules set for the game while encouraging robust engagement with the Bill to shape the ecosystem. Modernizing South Africa's payments system, he noted, is one of the top three strategic objectives of the SARB, alongside price and financial stability. The SARB has been working on a fundamental upgrade of the country's payment infrastructure, with PayInc, the SARB's newest subsidiary, playing a crucial role.

PayInc will serve as a national payment utility accessible to various players who meet the rules of participation in the South African payment ecosystem. The governor pointed out that fintech firms are already making significant contributions to the payments landscape. He highlighted that modernizing the payments platform will also lead to more complex payments, with transactions starting on a mobile phone, relying on cloud infrastructure, and passing through several technology providers before being completed, all within seconds.

Kganyago warned that if South Africa's digital payments gain a reputation for being clunky or unsafe, the country will not reap the benefits of payments modernization. He concluded that the payments space is one of the "most exciting" areas of South Africa's economy, with technology rapidly changing to enable better, faster, more affordable, safer, and more inclusive payments.

To catch up with other countries, South Africa needs the right mix of regulation and innovation, leveraging new technologies while building trust to ensure widespread adoption.