South African banks will make a big EFT payment change on Monday

South African banks will stop processing electronic funds transfer (EFT) payments and collections within the Common Monetary Area (CMA) from Monday, 9 September 2024.

The Common Monetary Area links South Africa, Namibia, Lesotho, and Eswatini into a monetary union where a single monetary policy prevails.

All countries inside the Common Monetary Area have the right to a national currency. However, these currencies are only legal tender in their own countries.

The South African rand, the union’s single currency, is legal tender throughout the countries which form part of the CMA.

To make this possible, the Lesotho loti, Namibian dollar, and Swazi lilangeni are pegged to the South African rand.

The monetary union means low-value cross-border payments within the CMA countries have been processed through South Africa’s domestic retail payment system.

It worked well and made transactions easy. It included companies using debit orders to serve clients in neighbouring countries.

The agreement further gave Namibia, Lesotho, and Eswatini access to the South African financial markets.

Another benefit was that it enabled and simplified cross-border electronic funds transfers without using systems like Swift.

Historically, low-value cross-border payments within the Common Monetary Area have been processed through South Africa’s domestic retail payment system.

However, treating cross-border payments as domestic transactions was not compliant with money laundering laws.

It violated international Anti-Money Laundering and Combating of Financing of Terrorism (AML/CFT) standards.

To address this problem, regulators in CMA countries have announced changes to cross-border payments, which affect EFT payments and debit orders.

From Monday, 9 September 2024, low-value cross-payments will be handled via a regional infrastructure payment system.

Therefore, South African banks will stop processing electronic EFT payments and collections within the CMA.

From Monday, South African account holders will no longer be able to make EFT payments to account holders in other CMA countries.

South Africans will also not be allowed to receive EFT payments from other CMA countries like Namibia.

The South African Reserve Bank (SARB) explained that the change will affect low-value EFTs and debit and credit payments.

It highlighted that these transactions will be treated as cross-border transactions and subject to greater due diligence requirements.

“Our payment system and processes must be regularised to enhance compliance with international standards,” the Reserve Bank said.

Doing so will prevent criminals from easily accessing EFT payments to launder funds and ensure that this misuse can be identified more effectively when it occurs.

This step also forms part of South Africa’s efforts to address several recommendations by the Financial Action Task Force (FATF).

The SARB said it would strengthen South Africa’s anti-money laundering, counter the financing of terrorism, and combat the proliferation financing regime.

“Regularising these low-value retail payments will help us to achieve our goal of exiting the FATF greylist by January 2025,” it said.

Banks operating in the CMA have elected to process these low-value retail payments using the regional payments infrastructure.

This infrastructure includes the Southern African Development Community real-time gross settlement (SADC-RTGS) system, which is primarily used for high-value payments.

The Reserve Bank highlighted that the changes will also include a new approach to treating debit orders.

From 30 September 2024, financial institutions can no longer debit account holders in other CMA countries as domestic customers or policyholders.

“Debit orders collected from customers’ accounts within the CMA countries must be initiated from an account domiciled in the respective CMA country,” it said.

These measures will protect customers as domestic central banks and conduct authorities will have in-country recourse against unscrupulous debit order practices.