The South African Reserve Bank (SARB) says it will conduct an assessment on the feasibility of establishing a domestic card scheme.
In a consultation paper published on Tuesday (2 March), the central bank said that the assessment will look at creating ‘white-label’ banking cards that can only be used in South Africa or neighbouring countries.
Among other benefits, this should allow for cheaper transactions than those offered by dominant players such as Visa and Mastercard.
“In South Africa, Visa and Mastercard have dominated the card scheme market. In 2019, approximately 48.8 million cards were in circulation in South Africa, and 5.6 billion transactions to the value of R2.1 trillion were processed,” the SARB said.
“This is an increase in volume of 16.2% and in value of 15.6% compared to 2018. A card scheme is therefore a key component of the NPS.”
The SARB said that most of unbanked South Africans have no immediate need for a card that can be used overseas.
“This raises the question regarding the scope for developing white-label or locally branded cards as cheaper alternatives to the brands of the major card schemes – especially for consumers who do not enter into global internet transactions or use cards beyond the borders of South Africa or beyond the Southern African Development Community (SADC),” it said.
The Reserve Bank said that the success of a sustainable domestic card scheme would depend on the collective effort and support of card issuers, retailers, consumers, regulators, policymakers, and government departments.
How card schemes currently work
The SARB said that there are currently two main models for card schemes in South Africa: four-party and three-party schemes.
A four-party card scheme has no direct relationship with the merchant or cardholder. It enables multiple issuers and acquirers to connect to the same card network. The issuer has a contractual relationship with the cardholder while the acquirer contracts with the merchant.
For example, Visa and Mastercard are the dominant card schemes accepted by all South African merchants that accept card payments.
This is attributable to the rules of the Payments Association of South Africa (PASA), which require that acquirers must be licensed with all card schemes and have a service agreement with all payment clearinghouse system operators (PSOs).
In a three-party scheme, the card scheme is both the issuer and the acquirer and contracts with both the cardholder and the merchant. Examples include Diners Club and American Express.
The SARB has asked interested stakeholders whether a similar card scheme could be used to release a domestic card in South Africa.
Additional questions include:
- What business model should a domestic card scheme adopt?
- Should only one domestic card scheme be established or should more than one be established, and why?
- What type of payments (e.g. ATM, POS, e-commerce) should be enabled under the domestic card scheme?
- What type of cards (e.g. debit card, credit card) should be issued under the domestic card scheme?
- What benefits will the establishment of a domestic card scheme yield for South Africa?
- What potential risks could a domestic card scheme pose to South Africa?