[Column] Andrew Springate: Modernising and regulating SA’s payments industry
In the second half of 2022, the South African Reserve Bank (SARB) announced it has its sights set on stricter regulations for the South African payments ecosystem “to ensure financial stability in a world of increasingly innovative and disruptive technology”. Though some new fintech players winced at the thought, it is a necessary move if South Africa wants to keep up with international trends, notes Andrew Springate, CEO of tech and financial gateway service provider PAYM8.
Fintechs and Virtual banks are increasingly grabbing a larger share of market space, but often taking on more risk than traditional banks due to their ability to scale up rapidly, says the International Monetary Fund. “Though stricter regulation might it more difficult for new players to enter the market, payments must be regulated thoughtfully as an essential service that enables economic activity,” says Springate.
“Newcomers may feel the payments landscape is over-regulated, but compliance is necessary to prevent chaos in a vital industry. Several provisions have been made to assist new financial services companies, including the Intergovernmental Fintech Working Group’s sandbox initiative, where newcomers can test services from a regulatory perspective.” There are, however, also some negatives that need to be addressed, says Springate. “Growth usually favours the incumbent – in this case, brick and mortar banks with entrenched systems. New fintechs, for instance, need a sponsoring bank to apply for a third-party payment processing platform. We’ve been fortunate in that our sponsoring bank welcomes and includes us, but that’s not always the case.”
Overall, Springate says the country’s fintech and payment space is largely making positive strides. “In general, the South African market and its decision-makers are open to new initiatives. We are a world leader in authentication of debit orders and in interoperability between ATMs from different banks, for example. And we’re lucky that the SARB is not nationalised as in some countries – it is and must remain an independent entity, guiding and directing the national payment system.”
When it comes to regulation, South Africa appears to follow the UK’s regulatory initiatives, though at a slower pace. That’s not a bad thing, according to Springate. “We’re a complex country with many diverse cultures, and we’re facing difficult challenges such as an energy crisis, large unbanked population, a weak economy, crime, and corruption. We need careful consideration before implementation. The European Union has now established a payment security directive that aims to open banking and regulations around it, and that’s not something that’s being adopted here yet, because you need a more stable environment first. People have also invested in this country and in new technologies, and need to see a return on those investments before we open up a more deregulated landscape.”
The SARB has, however, recognised the need to include non-banks in the payment system, as per their NPS Act review and Vision 2025 document. Such inclusion and collaboration are key to accelerating movement in the industry, says Springate. “Banks are realising that they need to partner with fintechs to move forward at a pace that is comparable to their competitors. To do this, some banks need to be more receptive to fintechs, new ideas and new ways of doing things. Fintechs, too, need to participate in that and help them move a little faster. Everyone has a role to play in shaping South Africa’s payments industry,” he says.
Andrew Springate is the CEO of tech and financial gateway service provider PAYM8.