Big payment changes in South Africa are coming
The South African Reserve Bank (SARB) is in the process of making significant changes to the country’s payment landscape and is proposing two new policies as an interim step.
The prosals have broad definitions of payment activity, and any non-bank businesses with some sort of transfer facilities (like e-wallets, for example) could be caught in the net.
Legal experts have warned these businesses to familiarise themselves with the coming changes to determine whether they are impacted or not.
The Reserve Bank has committed to addressing new regulatory challenges that come with the rising prominence of non-bank payment operations in South Africa.
This involves modernising the country’s National Payment System (NPS) which will allow it to better integrate South Africa’s economy with the rest of the world.
However, to do so, the SARB will need to make certain amendments to various laws, including the National Payment System Act.
Making changes to laws takes time, and the pace of evolution in the field is not waiting. Thus, the SARB has published two draft documents to address more immediate challenges.
According to Lerato Lamola, a partner at Webber Wentzel, the documents have been published under the existing regulatory frameworks as an interim step.
The first draft document is a draft exemption, namely, the Draft Payment Activities Exemption Notice (Draft Exemption Notice), which is set to be published under the Banks Act.
The other document is known as the Directive in respect of specific payment activities within the national payment system (Draft Directive) set to be published under the current National Payments System Act.
Lamola said that the draft policies could have a far-reaching impact South Africa’s payments industry, particularly because the definitions in both documents are quite broad.
This means that various activities could end up falling under ‘payment activities’ and may include unexpected business activities.
Lamola said the proposals are significant because entities that provide digital wallets, for example, have always been careful to ensure that their wallets would not provide for activities that could potentially constitute accepting a deposit as defined under the Banks Act.
Doing so would require licensing under the Banks Act.
The Draft Exemption Notice attempts to clarify the position and exempts the payment activities as defined which involve the pooling of funds into a store of value or payment account from the definition of ‘the business of a bank’ as set out in the Banks Act.
“It’s important for entities who provide digital wallets to read the Draft Exemption Notice’s definitions to assess whether they be covered by this proposed exemption,” he said.
Some of the activities that would qualify as payment activities under the draft proposals include:
| Payment activity | Definition and description |
| Acquiring of payment transaction | Contracting with a payee to accept and process payment transactions which result in a transfer of funds to the payee. |
| Card credit payment instructions | A payment instruction resulting in the credit of funds to a payment account linked to a card. |
| Electronic money | Electronically stored monetary value issued on receipt of funds and represented by a claim on the issuer, which is generally accepted as a means of payment by persons other than the issuer and is redeemable for physical cash or a deposit into a payment account on demand. This includes mobile money where an electronic wallet service allows users to store, send and receive money using their mobile phone. |
| Execution of payment transactions | Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or another payment service provider. |
| Faster payments | Providing an electronic service in which both the transmission of the payment message and the availability of funds to the payee occur in real time or near-real time, on a basis that the service is available 24 hours a day and 7 days a week. |
| Issuing of payment instruments | Contracting with a payer to provide a payment instrument to initiate payment instruction. |
| Provision of payment account or store of value | Providing an account or store of value held in the name of one or more payer or payee which is used for the execution of payment transactions. |
| Provision of third-party payment | Payee service provider – accepting funds or the proceeds of payment instructions from multiple payers on behalf of a beneficiary. Payer service provider – accepting funds or the proceeds of payment instructions, from a payer to make payment on behalf of that payer to multiple beneficiaries. |
| Money remittance | A service for the transmission of funds (or any representation of monetary value), with or without any payment accounts being created in the name of the payer or the payee. |
| Clearing | The exchange of payment instructions. |
| Settlement | The discharge of settlement obligations. |
| Provision of a scheme | Providing a set of formal, standardised and common binding rules governing the relationship between payment institutions or members of a scheme to provide payment instruments for the transfer of funds, or making and receiving payments, between or by end users. |
| Participation in a scheme | Participation in a scheme as admitted by a scheme in terms of its entry and membership criteria |
The Draft Directive, which is more exhaustive in its provisions, intends to regulate the list of payments’ activities set out in the Draft Directive.
Businesses that have a payment offering in their business would need to assess the payment activities set out in the documents to determine if they would be captured within the scope of the directive.
“Importantly, players in the market need to understand that this Draft Directive introduces requirements that deal with governance, prudential criteria, data protection, regulatory reporting and licensing/authorisation criteria, Lamola said.
“There are also fit and proper requirements for key persons. A material change to the regulatory regime is whereas, previously, payments providers didn’t have capital requirements, they will now need to prove, upon applying for SARB authorisation, that they hold the requisite capital.”
The Draft Directive also lays out requirements around the safeguarding and segregating of client funds, and anti-money laundering (AML) compliance of payments providers.
While the period for public comment on the draft documents closed on 16 April, Lamola said that this is just the first step in a long process to overhaul the payment system regulatory framework, and more opportunities to engage will become available.
“We encourage financial institutions, online providers with inbuilt payment platforms or any other affected bodies to independently study both documents and assess if the draft documents inadvertently capture activities that should not be scoped in,” he said.
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