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Journal of Payments Strategy & Systems Volume 6 Number 2
A review of payments interoperability in
the Southern African Development
Community region
Brad Gillis and Rishi Pillay
Received (in revised form): 13th April, 2012
BankservAfrica, 243 Booysens Road, Selby, Johannesburg, 2001, South Africa.
Tel: +27 114974000; Fax: +27 114930595; e-mail: rìship@bankserv.com
Brad Gillis has been in the payments industry
for the past 13 years, joining FirstRand in 1998
as CFO (chief financial officer) and business
owner of FNB’s electronic banking business,
where he was instrumental in merging the pay-
ments businesses within and across the group.
In 2004, Brad joined the SA Payments Strategy
Association (SAPSA), becoming head of SAPSA
in 2005. SAPSA focused on leading strategy for
the payments industry, particularly in the inter-
bank environment. He moved over to
Brad Gillis BankservAfrica in 2008 as head of the business
division, responsible for the company’s new
business growth, product support and client
relations, and the company’s strategic marketing
direction. In 2010, BankservAfrica restructured
into fully accountable business units and
rebranded in line with its broader 2014 strategy.
As part of this restructure, Brad was appointed
CEO Regulated Products, which includes all of
BankservAfrica’s clearing and settlement value-
added products.
Rishi Pillay
Rishi Pillay is the CEO of the Funds Transfer
Business Unit within BankservAfrica. He has
over 16 years’ experience within the banking
industry, having fulfilled senior management
roles across retail banking, operations, product
management and IT. He has worked extensively
Journal of Payments Strategy &
Systems
in South Africa and the Southern Africa
Vol. 6, No. 2, 2012, pp. 144–158 Development Community (SADC) region and is
 Henry Stewart Publications,
1750–1806 passionate about the market dynamics of the
Page 144
Journal of Payments Strategy & Systems Volume 6 Number 2
region, especially the lack of access to conven-
ient, cheap payment mechanisms to the majority
of the underbanked and unbanked populations.
Rishi has academic qualifications from leading
universities in South Africa, the UK and the USA
covering business management, strategy and
innovation.
ABSTRACT
Payments interoperability is a concept that is
widely misunderstood, or at the very least, con-
sidered in a very narrow sense. The authors
hope to provide an extensive explanation of the
concept and to highlight the conditions necessary
to achieve interoperability as well as the perva-
siveness in the SADC Region. The authors
will present a vision for payments interoperabil-
ity in SADC based on a five-tier model that
encompasses socio-economic, technical and regu-
latory issues. The envisaged benefits to the
region are described in some detail, and readers
will get a sense of some of the current develop-
ments that form the basis for the future pay-
ments regime of SADC. The proliferation of
electronic payments in order to achieve cash dis-
placement is deemed possible only with an effec-
tive cross border, multi-currency interoperable
payments environment. The authors wish to
promote awareness; debate and action that will
ultimately see an efficient payments system con-
tribute to the growth of the region and the uplift
of the living standards of its residents.
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Keywords: payments interoperability,
SADC, Southern African Development
Community, ISO20022, interchange,
regulatory framework, electronic pay-
ments, mobile payments
INTRODUCTION
‘Interoperability’ refers to the ability of
diverse systems and organisations to work
together (‘inter-operate’). The term is
often used in a technical systems engineer-
ing sense, or alternatively in a broad sense,
taking into account social, political and
organisational factors that affect system to
system performance.
With payments, factors to consider are
multiple currencies, geography, language,
financial services providers, interchange,
governments, fiscal and monetary policies,
and that is before even considering the
technicalities of IT protocols, operating
systems, devices and communication pro-
tocols.
According to the Bank for International
Gillis and Pillay
Figure 1 A vision
for payments
interoperability in
the SADC region
Settlements (BIS), payment system inter-
operability is:
‘One of the principal components of a
country’s monetary and financial system
and, therefore, crucial to a country’s eco-
nomic development. It is through the
national payment system that money is
transferred between buyers and sellers in
commercial and financial transactions. If
done well, the development of the
national payment system can reduce
overall transaction costs and expand the
opportunities for commercial and finan-
cial transactions in an economy.’1
The Southern African Development
Community (SADC) Committee of
Central Bank Governors recognised that
key to the region’s growth and monetary
union ambitions is the establishment and
improvement of payments, clearing and
settlement, including interoperability both
within and across the countries within the
SADC.
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Payments interoperability in the SADC region
The aim of this paper is to examine the
current conditions and progress towards
payments interoperability in the SADC
region (see Figure 1).The authors examine
the existing environments in terms of:
• sound regulatory and legal frameworks;
• integrated financial infrastructure;
• common payments standards;
• cross-border settlement and clearing;
• economic considerations.
BENEFITS OF INTEROPERABILITY
TO THE SADC
In general, SADC payment systems remain
fragmented, inefficient, costly and under-
developed. This is a key impediment to
intra-regional trade and an obstacle to
achieving a single common market in the
region.
Most SADC economies, from a retail
perspective, are cash based, involving a lot
of paperwork to effect payments and
transact business across borders. This ren-
ders the payment system very costly and
inefficient. In addition, with the exception
of South Africa and one or two other
countries, payment systems in the SADC
are very small in scale, fragmented and lack
competition, resulting in inefficiencies and
high transaction costs.
The development of payment systems is
closely associated with the movement of
goods, services, capital and people. An effi-
cient payment system reduces costs and
delays in effecting transactions as well as
minimising the risks of holding cash, such
as theft, currency counterfeit, and loss of
interest and exchange rate value.
Developed, integrated payment systems
promote cross-border trade, intra-regional
trade and regional integration. This is
because of:
• the efficiency of circulation of goods
and services;
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• the pace of economic expansion due to
enhanced competition;
• improved efficiency and productivity;
• minimised transaction costs;
• improved trust in the security and relia-
bility of payment instruments.
Indirectly, there are other benefits of
strengthening payment systems that can
help promote intra-regional trade, such as:
• facilitating sound monetary policy and
liquidity management;
• improving the management of both
credit and systemic risk as a result of
value transfers being completed effi-
ciently and within acceptable timescales;
• enhancing monetary and financial
sector integration;
• expediting customs processing and gov-
ernment transactions;
• supporting foreign exchange trading;
• facilitation of financial sector develop-
ment by the introduction of new finan-
cial instruments, products, institutions
and markets.2
SOUND REGULATORY AND LEGAL
FRAMEWORKS
A fundamental aspect to achieving and
enabling the desired benefits is the estab-
lishment of a sound regulatory environ-
ment both within the SADC participating
countries and across them.
Figure 2 describes the various and
often diverse number of participants/sta-
keholders in a national payment system,
each fulfilling a specific function in the
value chain. These range from the Real-
Time Gross Settlement (RTGS) environ-
ment (which in most cases is controlled
by the central bank) to the clearing
houses facilitating retail payment clearing
for authorised participants, to the system
operators and third-party payment serv-
ice providers who service the retailer,
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Source: http://www.pasa.org.za
consumer or corporate with payment
services.
These factors are no less important
when it comes to making cross-border
payments and, in particular, within
regions wishing to promote and sustain
hubs of economic activity and growth
(Figure 3).
Establishing the correct levels of regula-
tory oversight that ensure acceptable
arrangements for management of risk
while still stimulating active use of the
platform(s) is key. Cooperation and the
political will to succeed are also absolute
imperatives.
The balance
Achieving the balance between managing
risk and stimulating market demand of an
established payments platform is key.
Ensuring the existence of an environment
that promotes innovation is also essential,
especially given modern technology and
the resultant payment system convergence
being experienced. The responsibility of
devising and implementing a regional pay-
ment strategy to achieve this lies primarily
with the central banks and the established
regional mechanisms.
Gillis and Pillay
Figure 2
Participants in the Participants/stake-
SA national holders in a national
payment systems
payments system
(similar
arrangements could
be expected in
other jurisdictions)
Trust and acceptance
To achieve levels of trust and acceptance
of the newly created regional payment
system platform by country, regional and
international participants, there are a
number of criteria to consider:
• regulation that promotes and ensures a
safe and sound operating environment;
• effective, efficient and compliant over-
sight and monitoring regulation, which
is fit for the purpose of the various pay-
ment systems it serves;
• in-country and regional interoperability
through open, flexible and common
standards;
• appropriate, cost-effective systems and
services;
• use of shared infrastructure and pay-
ment capabilities that are world class
and have a proven record of sustained
delivery and reliability;
• an adaptable capability that can quickly
adjust to changing market conditions
and innovations;
• adoption of a phased approach such as
one through the common monetary
area (CMA), providing a platform to:
— test the system concepts of regional
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Payments interoperability in the SADC region
Figure 3 A
proposed regional
regulatory clearing and settlement
framework for — create confidence in a regional set-
payments in the tlement environment
SADC region — break down barriers and misconcep-
tions.
INTEGRATED FINANCIAL
INFRASTRUCTURE
Financial infrastructure, broadly defined,
forms the underlying foundation for a
country’s financial system. It includes all
institutions, information, technologies,
rules and standards that enable financial
intermediation. Poor financial infrastruc-
ture in many developing countries poses a
considerable constraint on financial insti-
Page 148
tutions to expand their offering of finan-
cial services — credit, savings and payment
services — to underserved segments of the
population and the economy.
A sound payment system can mitigate
financial crises by reducing or eliminating
settlement risk related to financial market
transactions, in particular credit, liquidity
and operational risks. One of the main
sources of settlement risk in the payment
system could be operational risk.
Operational effectiveness ensures the cir-
culation of funds in the financial system
and efficient liquidity management by par-
ticipants. Operational risk emanating from
the payment system infrastructure should
therefore be well managed and minimised.
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SADC integration
Regional payment system infrastructure
integration could provide many benefits,
including network externalities, interoper-
ability, reduced capital investment by the
region and standardised payment system
risk-reduction measures. Regional infra-
structure integration could also result in
disadvantages, such as concentration risk.
In order to enhance the operational effec-
tiveness of the regional payment system
and to address concentration risk, ade-
quate BCP and DR arrangements need to
be in place in the region.3
Financial infrastructure is critical for the
efficient provision of and access to finan-
cial services. Innovations in payment sys-
tems can help to reach customers where
bank branches do not exist, as with auto-
Gillis and Pillay
Figure 4 ATMs per
million people
Figure 5 POS per
million people
mated teller machines, mobile banking
and other point-of-sale arrangements
(Figures 4 and 5).
According to the World Bank Payments
survey 2008,4 financial infrastructure in
the SADC region shows a high degree of
asymmetry both across countries and
within them. South Africa, Mauritius and
Botswana have the most developed infra-
structures, but even within these
economies there is a stark contrast
between rural and urban development.
The statistics below support this view.
Substantial development, however, has and
is taking place in many of the SADC
countries.
The impact of mobile
New technologies, such as mobile bank-
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Payments interoperability in the SADC region

Figure 6 Mobile
phones per
thousand people

Figure 7 Global
mobile connections
by region (millions)

ing, provide opportunities to capture end of 2012) in the world (according to

funds digitally, which can contribute to
the monetary base in the economy. Since
the number of people with cell phones in
many economies far exceeds the number
of those with bank accounts, this new
distribution mechanism offers great
potential.
Africa is the second largest mobile
market by connections and the fastest
growing (649 million connections in Q4
for 2011 and will reach 735 million by the
the GSMA report released in November
20115) (Figures 6 and 7).
Mobile phone penetration in the SADC
is significantly higher than financial serv-
ices penetration. Mobile is also playing an
increasingly important role in remittance
payment facilitation. Although remittances
are centred on cash and movement of cash,
through mobile technologies, they can also
become a likely cash displacement catalyst
to stimulate market adoption of other

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financial payments and banking facilities as
the need presents itself.
Platform stimulation
Achieving the establishment of an effective
and efficient payment infrastructure plat-
form is only part of the solution; stimulat-
ing demand for the use of the platform is
also an obvious requirement and an area
where the regulators and governments can
play significant roles:
• regulators: through ensuring robust, bal-
anced regulation that does not burden
low-risk, cost-sensitive payment systems
such as micro payments and remittances
• governments: as large human resource
employers, encouraging the migration
of salary credits or payments from cash
and cheques (which are easily cashed)
to bank account deposits.
COMMON PAYMENT STANDARDS
Common standards enhance the opera-
tional effectiveness and interoperability of
the payment systems. Standards are defined
as minimum requirements regarding infra-
structure and design (eg technology, secu-
rity and payment products) and business
aspects (eg practices and arrangements) of
the payment system industry. Standards
ensure a common understanding of
requirements.
A major objective of implementing
standards is to enhance security within the
payment system. These standards focus on,
among other things, the prevention of
fraud, increasing trust, integrity, access to
and confidence in the payment system.6
Standards for payment messages have
been touted as significant enablers in
terms of innovation, global interoperabil-
ity, competition, efficiency and cost reduc-
tion. Common standards will enhance
security and interoperability in regional
payment systems.
Gillis and Pillay
Payment message formats
ISO 20022 is an eXtensible Markup
Language (XML) schema for the develop-
ment of financial messages. This structure
is capable of supporting multiple payment
types and forms the backbone of payment
messaging required to support Single Euro
Payments Area (SEPA) integration in
Europe. The result is a groundswell of
major payment market participants invest-
ing in ISO 20022.
The rationale for adopting this standard
is that payments represented in this struc-
ture can be mapped to the data require-
ments of any major clearing system or
payments process. In other words, it forms
the core of payment processing and offers
the possibility of true global payment serv-
ices interoperability.
The SADC Payment System Project
has adopted the ISO 20022 standard as the
basis for developing financial messages, at
least in the retail payments environment.
South Africa leads the way in terms of re-
engineering message formats to adhere to
the ISO 20022 standard.
International Payments Framework
The International Payments Framework
(IPF) initiative through the International
Payments Framework Association (IPFA)
includes members from various nations
(including the SADC) and aims to develop
rules for the exchange of cross-border
electronic fund transfers. Organisations
comprising the IPF include primarily
financial institutions and Clearing and
Settlement Mechanisms, as well as associa-
tions, standard-setting bodies, industry ven-
dors and other users of payment services.
The IPF is seeking to enable better
interoperability between existing domestic
and/or regional payment systems. As such,
it seeks to establish rules and procedures
for the exchange of transactions in multi-
ple currencies based on existing clearing
and settlement practices internationally.
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Payments interoperability in the SADC region
CROSS-BORDER CLEARING AND
SETTLEMENT
Cross-border payment, clearing and set-
tlement systems in the SADC are para-
mount in enabling the safe and efficient
circulation of money, thereby facilitating
regional economic development. Sound
SADC payment, clearing and settlement
systems will enhance regional financial
stability by providing, among other
things, appropriate SADC payment
system risk-reduction measures. The gen-
eral consensus within the SADC is that
the credit-push payment principle is the
preferred payment method and electronic
instruments are preferred to paper-based
instruments.
According to the National Payment
System Framework and Strategy, Vision
2015 of the South African Reserve Bank,7
critical success factors include:
• SADC stakeholder interaction, cooper-
ation, support and commitment from all
relevant authorities
• harmonised SADC payment system
legal frameworks in all jurisdictions
• availability of management information
systems allowing each country’s clearing
and settlement position to be visible
• harmonised payment, clearing and set-
tlement standards in the SADC.
Remittances
Cross-border remittance payments are
defined as person-to-person payments
from senders in one country to recipients
in another. In the 2010 Remittance Prices
Worldwide Database, the World Bank
identified 29 countries as major remit-
tance sending countries. South Africa is
the major remittance sending country in
the SADC.
Through the proposed anti-money-
laundering and exchange control relax-
ation by the South African Financial
Intelligence Centre and the South African
Page 152
Financial Surveillance Authority, remit-
tances flowing through informal channels
can be brought under formal regulatory
oversight.
Efficiency and security of cross-
border payments
For cross-border payments, the transfer
mechanism is considered most efficient
when the various players in the value
transfer chain, from retail service to end
users through to settlement services for
each leg of the payment, are linked
through contract or partnership and tech-
nical connectivity. This requires some
degree of harmonisation of standards for
interoperability and interconnectivity. The
absence of a minimum required degree of
harmonisation and standardisation in the
retail payment systems of the receiving and
sending countries is the principal source
of difficulty in creating efficient cross-
border payment mechanisms for retail
payments.
Standardisation promotes effective
competition among the various payment
service providers and their transfer chan-
nels in each corridor, which typically
improves service cost and speed of deliv-
ery. Standardisation can also improve other
aspects of end-to-end efficiency and safety,
eg standardised messaging formats used by
correspondent banks to generate fewer
misdirected payments. Similarly, standard-
ised payment instruments and transaction
systems that allow greater interoperability
of front-end networks create more con-
venient access to services and funds, espe-
cially at the receiver end of the transfer.
ECONOMIC CONSIDERATIONS
The core economic factors and their
influence on development in the commer-
cial, industrial and financial sectors are par-
ticularly relevant to the payment service
needs and capabilities of the country. The
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Source: World Economic Outlook, June 2011 update
SADC countries differ widely in terms of
these factors. Of the 15 member countries,
six are landlocked, six have populations
below ten million people, ten have
economies smaller than US$10bn per
annum, and several rely on transnational
river basins for their water. South Africa is
the economic anchor of the region, but
half a dozen of the SADC’s member states
are large or potentially large economies
(including Angola, the Democratic
Republic of Congo, Mozambique,
Tanzania, Zambia and Zimbabwe).
Principal economic factors influencing
national payment system development
include the following.
• The level and stability of overall economic
growth. Economic activity in the SADC
region picked up in 2010 following a
slow down experienced in 2008 and
2009 as a result of the global economic
and financial crisis (Figure 8). The reac-
celeration in economic activity in the
SADC region was driven by recovery of
the global economy. This recovery
helped to stimulate rising external
demand, firming of international metal
Gillis and Pillay
Figure 8 SADC
average economic
growth rates
prices, rising global incomes, resurgence
of capital flows to the region, as well as
sound macroeconomic policies by
SADC member states. The global eco-
nomic growth rebounded from a nega-
tive growth of 0.5 per cent in 2009 to a
strong growth of 5.1 per cent in 2010,
presenting immense post-crisis growth
opportunities for the SADC.
In response to these positive growth
factors, economic activity in the region
grew by 5.4 per cent in 2010, compared
with a growth of 2.3 per cent in 2009.
• Wealth distribution. Average per capita
income in the SADC region increased
by more than 12.1 per cent from
US$3,082 in 2009 to US$3,456 in 2010
(Figure 9). The increase in per capita
income in 2010 mainly reflects
improved economic activity in the
region following sluggish growth in
2009. Botswana, Mauritius, Seychelles
and South Africa are leading other
countries with per capita incomes
greater than US$7,000 in 2010. Angola,
Lesotho, Namibia, Swaziland and
Zambia also enjoy relatively high per
capita incomes in excess of US$1,000.
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Payments interoperability in the SADC region
Figure 9 SADC
per capita income
(US$)
Source: SADC Central Banks and World Bank (Seychelles)
The rest of the countries have less than
US$1,000 in per capita income.
• The education and skill levels of, and avail-
ability of training facilities for, the labour
force. The SADC countries differ vastly
with respect to education and skills
levels, both across and within countries.
Class differences and skewed wealth dis-
tribution restrict access to quality edu-
cation and training. Quality of
government education is often poor
and does not reach the entire popula-
tion. Private/public sector cooperation
is almost non-existent, resulting in a
disconnect between skills training and
availability.
• The development of industrial infrastructure
such as telecommunications and transporta-
tion systems. Over the period
1995–2005, infrastructure improve-
ments have boosted southern Africa’s
growth by 1.2 percentage points per
capita per year. This positive growth
effect has come almost entirely from the
Page 154
growth of mobile telephony; improve-
ments in the road network made small
contributions. Inadequate power infra-
structure has eroded growth more in
southern Africa than in other parts of
the continent. If southern Africa’s infra-
structure could be improved to the level
of the strongest-performing country in
Africa (Mauritius), regional per capita
growth performance would be boosted
by some 3 percentage points.
The SADC offers the best access to
information and communications tech-
nology (ICT) services of any regional
economic community, but these serv-
ices are priced high. The telecommuni-
cations market in the SADC has been
open to foreign investors since the early
1990s and several large companies
dominate the market. Three countries
gained access to a submarine cable, and
several more will be connected through
projects that are under way. No land-
locked country has been connected as
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yet. Creating competition among land-
ing stations is critical to providing an
affordable service. In order for the ben-
efits of submarine access to spread
throughout the region, it is necessary to
complete the 5,100 missing kilometres
of terrestrial fibre optic network.
Associated investments are small, and
anticipated returns on reducing the
price of broadband access relatively
high, with payback periods of less than
a year.
Completing and preserving the
SADC’s regional ICT, power and trans-
port backbones would require sustained
spending of US$2.1bn annually over
the course of a decade. This is about 7
per cent of the overall infrastructure
spending requirements (regional and
national) for the SADC region as a
whole. Of the total US$2.1bn, around
US$1.6bn a year is associated with
investment in new regional infrastruc-
ture assets, while the balance of
US$0.4bn is needed to maintain the
regional network in perpetuity once
established, most of it being associated
with road maintenance. By far the
largest item on the regional spending
agenda is the power sector, with specif-
ically regional power assets demanding
US$1.4bn per year over the next
decade. The transport sector comes in
second place, with an annual spending
requirement of US$0.3bn.
• The pace of innovation and technological
change. A Protocol on Science,
Technology and Innovation (STI) was
signed by Heads of State and
Government in August 2008, in
Johannesburg, South Africa. It is a blue-
print document, which outlines the
framework of cooperation between
member states within the SADC
region. It came about through extensive
deliberations between member states
and talks on scientific and technological
Gillis and Pillay
matters of interest within the region.
Some of the aims and objectives of the
Protocol are to:
— establish institutional mechanisms in
order to strengthen regional cooper-
ation and coordination on STI
— institute management and coordina-
tion structures with clearly defined
functions, which will facilitate the
implementation of regional STI pro-
grammes
— pool resources for scientific research,
technological development and
innovation within the region
— optimise public and private invest-
ment in research and development
within the region and leverage
external contributions
— recognise, develop and promote the
value of indigenous knowledge sys-
tems and technologies
— share experiences and develop joint
initiatives that promote appropriate
technologies for wealth creation and
elimination of poverty within com-
munities, especially in rural areas.
COMPLEXITIES, PROBLEMS AND
OPPORTUNITIES
Markets
The varieties of markets that will need
servicing by SADC payment system prod-
ucts are numerous, ranging from the
unbanked market, needing cash remit-
tances and basic transactional capabilities,
to the formally banked consumer and cor-
porate markets, needing more sophisti-
cated instruments to service their
requirements. While the more mature
markets will undoubtedly benefit from a
greater degree of regional interoperability
and the economic benefits that this will
bring, focus will also need to be on bring-
ing formal transactional and basic banking
options to the unbanked and under-
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Payments interoperability in the SADC region
banked, thus contributing to creating
volume demand for the platform.
Participants
Traditionally, payment systems were the
domain of central banks and their cus-
tomers. Today, the world is far different
with an ever-increasing number of non-
traditional payments service providers
entering the market. Indeed, controlled
broader access by participants other than
banks is often encouraged, given the desire
for increased competition.
The South African National Payment
System Act makes provision for a number
of non-traditional players including:
• system operators who facilitate payment
infrastructure connectivity on behalf of
a corporate client or even a bank that
does not possess the technical skills to
connect to the national payment system
and would rather outsource this skill,
given the cost and specialist nature of
the function
• third-party payment service providers
who collect and make payments on
behalf of their clients; an example of
such a service provider would be a
salary payments bureau
• designated payment clearing partici-
pants, which provide for non-bank
organisations to become designated,
through the central bank, as clearing
participants in their own name; the set-
tlement function remains a bank only
function.
Within the SADC, these various partici-
pants, including banks and their cus-
tomers, will need consideration as part of
the model and are likely to play a vital role
in stimulating the need for payment inter-
operability and growing the transaction
volume throughput in the system. They
will provide increased levels of competi-
tion that will, in turn, drive innovative and
Page 156
cost-efficient payment products and
related services for the region.
Cash and cheques
These old payment stalwarts are not to be
ignored and, while cheques in some mar-
kets are declining at a rate in excess of 20
per cent per year, there is still demand in
the small and medium enterprise market.
As part of the SADC’s payment strategy,
finding suitable electronic alternatives,
again possibly with mobile complement-
ing the solution, will see the exit of
cheques becoming an option for consider-
ation.
Cash, in contrast, is likely to remain a
dominant payment mechanism for many
years to come and, while cash displace-
ment strategies are likely to make some
inroads, cash is unlikely to warrant an exit
strategy any time soon. To this end, elec-
tronic management of country and
regional cash balances and its movement is
a necessity, and automated clearing houses
can and do facilitate, through their sys-
tems, a central and interoperable role.
Electronic payments
Payment service demand stimulation
through the encouragement of electronic
deposits (batch and real time), such as
salary credits, and strategies around cash
displacement will not only contribute to
the volume flowing through the payment
systems, but will also have a positive
impact on payment velocity and retail
funding availability.
Recurring electronic payments such as
utility payments, insurance premiums and
loan repayments can typically be serviced
through a direct debit batch service that
‘pulls’ the transaction from the bank
account on an agreed date. Other services
that have been developed in recent years
include low income collection products
that function through a randomised col-
lection approach, so that one collector is
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not given preference over another. This
product also uses card authentication tech-
nology, and it is quite conceivable that
mobile and even biometric authentication
could become natural replacements or
alternatives to cards in certain markets.
Electronic payment mechanisms such as
card products are a natural complement to
a bank account deposit or a credit facility.
They give control and flexibility to the
customer and the management of their
financial activities. Interoperable card
products can be expensive, however, as
they are largely supplied through interna-
tional companies offering features such as
international interoperability, which are
unlikely to be useful to a market not prone
to internet use or overseas travel.
Alternatives such as an interoperable
domestic card scheme might prove to be a
more cost-effective alternative.
The use of technologies such as near-
field communication, biometrics and the
role that mobile will undeniably play in
the provision of payment transactions, are
fundamental ingredients in stimulating the
demand. It is worth reiterating that linking
mobile, the technology with which even a
customer with very little financial literacy
is familiar, to the card environment could
become the bridging catalyst to a broader
market acceptance of formal financial
services and products, thus increasing pay-
ment volume across the platform.
Interchange
One of the overarching economic factors
that will need consideration is the estab-
lishment of levels of interchange that will
flow between the transaction acquirers and
issuers in the payment systems. Levels will
need to be set so that the economics of
both sides of the market are balanced,
ensuring stimulation of demand for the
service. New and emerging payment sys-
tems might also need a different approach
to stimulate demand as opposed to the
Gillis and Pillay
more mature and established markets that
have established acceptance and demand.
Interchange has been the subject of
debate for many years in countries such as
the USA, the European Union, Australia
and even in South Africa through its
Competition Commission Enquiry
(2006–08). The central bank of South
Africa is currently facilitating a process to
review the local interchange dynamics
with a view to establishing a methodology
or approach that will enable the revision
of interchange levels across its national
payment system.The impact of this process
on the establishment of the SADC pay-
ment system will need consideration.
CONCLUSION
In the context of regionalisation, the
members of the SADC are striving
towards creating an environment con-
ducive to payments interoperability. Most
SADC economies, from a retail perspec-
tive, are cash based, which renders the pay-
ment system very costly and inefficient. In
addition, with the exception of South
Africa, payment systems in the SADC are
very small in scale, fragmented and lack
competition, resulting in inefficiencies and
high transaction costs. These are key
impediments to intra-regional trade and
an obstacle to achieving a single common
market in the region.
Regulators and governments are start-
ing to consider ways of stimulating
demand for the use of electronic payments
through ensuring robust, balanced regula-
tion that does not burden low-risk, cost-
sensitive payment systems such as micro
payments and remittances. The public
sector, as large human resource employers
in the region, can encourage the migra-
tion of salary credits or payments from
cash and cheques to bank account
deposits.
The SADC has agreed to adopt the
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Payments interoperability in the SADC region
ISO 20022 message format. By adopting
common standards across the region, the
operational effectiveness, security and
interoperability of the payment systems are
enhanced. Standards for payment messages
have been touted as significant enablers in
innovation, global interoperability, compe-
tition, and efficiency and cost reduction.
The SADC cross-border payment,
clearing and settlement systems are para-
mount in enabling the safe and efficient
circulation of money, thereby facilitating
regional economic development. Sound
SADC payment, clearing and settlement
systems will enhance regional financial sta-
bility by providing, among other things,
appropriate SADC payment system risk-
reduction measures. The region is striving
towards: harmonised payment system legal
frameworks in all jurisdictions; the avail-
ability of management information sys-
tems that allow each country’s clearing
and settlement position to be visible; and
harmonised payment, clearing and settle-
ment standards.
Despite diversity between the different
SADC countries in terms of economic
factors, activity in the region picked up in
2010, following a slowdown experienced
in 2008 and 2009 as a result of the global
economic and financial crisis. Economic
activity in the region grew by 5.4 per cent
in 2010, compared with a growth of 2.3
per cent in 2009. Average per capita
income in the SADC region increased by
Page 158
more than 12.1 per cent from US$3,082
in 2009 to US$3,456 in 2010. Further
infrastructure improvements will boost
southern Africa’s growth by up to 3.0 per-
centage points per capita per year.
A concerted and coordinated approach
that puts the interests of the region above
sovereign agendas will ensure that an effi-
cient and cost-effective payment environ-
ment thrives and enables economic
growth, financial inclusion and, ultimately,
improved socioeconomic conditions for
all citizens of the SADC.
REFERENCES
(1) <Source for quote>
(2) United Nations Economic Commission
for Africa, (UNECA) (2010) ‘Assessing
Regional Integration in Africa (ARIA
IV): Enhancing Intra-Regional Trade’,
UNECA, Addis Ababa.
(3) South African Reserve Bank (2011) ‘The
National Payment System Framework
and Strategy, Vision 2015’, South African
Reserve Bank, Pretoria.
(4) The World Bank (2008) ‘Payment
Systems Worldwide: A Snapshot.
Outcomes of the Global Payment
Systems Survey’, The World Bank,
Washington, DC, June.
(5) GSMA (2011) Report, GSMA, London,
November.
(6) South African Reserve Bank, ref. 3
above.
(7) Ibid.