Big payment change for South African banks

FNB was the first local bank to join BankservAfrica’s Transactions Cleared on an Immediate Basis (TCIB) Payment Scheme to replace its EFT payments system earlier this month. 

BankservAfrica expects other commercial banks in South Africa to join the service in the next two years as they find solutions to process cross-border payments within the Common Monetary Area (CMA). 

The CMA consists of South Africa, Namibia, Lesotho, and Eswatini. BankservAfrica has plans to expand the service across the continent. 

Historically, most of these payments were processed through the Electronic Funds Transfer (EFT) payment system. 

However, as regulations have changed, this system is no longer compliant. South African banks stopped processing EFT payments within the CMA on 9 September. 

The CMA has historically facilitated seamless cross-border transactions due to a shared monetary policy and the use of the South African rand as the region’s common currency.

However, treating these transactions as domestic payments has been deemed non-compliant with international regulations.

Therefore, this significant change is necessary to comply with international anti-money laundering and counter-terrorism financing (AML/CFT) standards.

Together with the Reserve Bank, BankservAfrica has been working on a system to replace the outdated EFT payment framework. 

In 2015, BankservAfrica began building the TCIB platform and formally launched it in 2021 as the successor to the EFT system. 

It has several significant advantages over the old system, including the instant clearing of transactions across borders. 

Payments can now be processed in near real-time, even outside traditional banking hours, including evenings, weekends and public holidays. 

This level of convenience provides a substantial advantage over the previous EFT system, which was limited to standard banking hours.

BankservAfrica also plans to expand this platform throughout Southern Africa, with 11 more countries currently preparing to join. 

It expects most commercial banks in South Africa to join the platform in the next two years after FNB was the first to join the platform in early November 2024.

FNB and RMB’s head of foreign exchange, Richard Porter, said this solution has already begun processing low-value payments within the CMA and is available across the bank’s digital platforms. 

The new payment system is also part of the Reserve Bank’s plan to create an integrated payment system across Southern Africa. 

To do this, the local payment system has to be modernised, and the regulatory environment must be standardised across neighbouring countries. 

The head of the National Payment System Department at the Reserve Bank, Tim Masela, explained that the TCIB is vital to creating a retail cross-border payments infrastructure. 

The Reserve Bank has taken the lead in driving greater integration. Masela explains that it has created model laws and regulations for other countries to implement to enable full integration. 

The integration of payment systems within the Southern African Development Community (SADC) requires modernising the payment systems of member states to align them with South Africa’s system.

This modernisation would also involve enhancing the legal and regulatory frameworks, as currently, there are 15 distinct frameworks across the region. 

To accelerate this, the Reserve Bank recently announced its intention to buy 50% of BankservAfrica and create a national payments utility. 

“Our role has always been to provide essential payment services to financial institutions,” said BankservAfrica CEO Stephen Linnell. 

“This consequential partnership between the company, its commercial bank shareholders, and the SARB signifies both a continuation and expansion of that role as we focus more deliberately on financial inclusion through affordable access to modern payment capabilities.”

A foundational offering of the envisioned Payments Utility is PayShap, a service launched by BankservAfrica in March 2023 that allows South Africans to make instant payments. 

The expansion of the TCIB is set to be the second pillar on which the utility will be built, focussing on cross-border payments.