South Africa is rebuilding the machinery behind its payments system

South Africa is undergoing a significant transformation of its payment system, reshaping the machinery behind transactions and opening opportunities for fintechs and non-banks. At a recent roundtable in Johannesburg, payments executives highlighted new regulations, richer data, and faster cross-border infrastructure as key drivers of this change.

A proposed activity-based regulatory model could grant greater freedom for non-banks and fintechs to offer payment services directly, while initiatives in real-time cross-border payments and new payment standards are revolutionizing transaction processing. Lesego Chauke, chief payments officer at Pay Inc., South Africa's new national payments operator, emphasized the industry's regulatory transformation, stating that the focus should be on preparing for the changes rather than questioning their occurrence.

The regulatory shift includes moving card and high-value clearing to the SARB and low-value clearing to Pay Inc., while the Payments Association of South Africa loses its recognition. This institutional restructuring is part of a broader modernization of South Africa's National Payment System. Under the proposed new framework, payments will be regulated based on the activity being performed, rather than the entity's institutional identity, potentially allowing more non-bank companies to provide payment and collection services.

Non-banks will still need to meet requirements related to licensing, governance, anti-money laundering, fraud prevention, resilience, and operational risk. However, ISO 20022, the global standard for payment messaging, will play a crucial role in improving payment processing by enabling richer transaction data. This includes structured information about addresses, locations, and payment purposes, which can reduce payment exceptions, enhance fraud detection, and streamline compliance.

South Africa's payment system is also being connected to other regional systems, such as Transactions Cleared on an Immediate Basis (TCIB), which aims to enable instant low-value cross-border payments, and China's Cross-Border Interbank Payment System (CIPS) for processing renminbi transactions. While faster infrastructure is essential, businesses must ensure high-quality underlying data to prevent issues and maximize the benefits of these changes.