While the Payments Association of South Africa (PASA) agrees with much of substance of the article “Establishing a Mobile Money Payment Clearing House Participant Group: The Key to Unlocking a Cashless Economy for South Africa”, we are of the view that there are a few areas that require some further exploration and explanation. We also outline a possible process whereby a Mobile Money PCH could be created and further, explain how the new PayShap payment system is intended to fill exactly the gap described in the Mobile Money paper.
The Payment Clearing House construct
PASA is the payment system management body recognised by the South African Reserve Bank (SARB), in terms of the National Payment System (NPS) Act of 1998, to organise, manage and regulate the participation of its members in the payment system.
The NPS Act limits direct NPS participation in clearing and settlement within the NPS, and thus membership of PASA, to banks (including mutual banks and branches of foreign banks) and designated clearing system participants (i.e. non-banks).
Non-banks may be, and have been, designated to participate directly in the NPS as designated clearing system participants on an individual basis. Examples of such entities include Diners Club, Efficacy, PayCorp and Yoco. It is notable that these designations are largely made for Card-related activities, and not for credit push payments. Credit push payments are deemed to be underpinned by deposit taking activities, and therefore require Banks Act approval or exemption.
A Payment Clearing House (PCH) refers to a legal arrangement between two or more NPS participants that governs the clearing and settlement of payment instructions between the participants. It is the construct used by PASA to regulate and manage the activities of its members in the NPS. A PCH Participant Group (PG) as the governing structure comprised of participant representatives, manages operational matters for the PCH via PCH agreements, clearing rules and service level agreements.
The PCHs themselves are aligned to various payment streams, and through the PCH PGs oversee the movement of money across different payment “rails”. Examples include the EFT Credit PCH (which encompasses salary payments and other EFT payments), the EFT Debit PCH (which encompasses debit orders), and the Rapid Payments PCH (which encompasses PayShap). It is notable that the PCHs therefore are aligned to the different means of moving money, rather than to different forms of money or stores of value. All the PCH PGs regulate the movement of digital or electronic forms of money.
A Mobile Money PCH
We understand “mobile money” in the article to reference Electronic Money (e-money) as per the SARB position paper 01 of 2009, which refers to electronic money represented by a claim on the issuer which is redeemable for physical cash or a deposit into a bank account on demand. The position paper explains that in terms of prevailing South African law (primarily the Banks Act), only South African registered banks may issue e-money. Non-banks may (and do) enter into arrangements with banks, as is the case for the existing non-bank e-money schemes, including MTN’s Mobile Money (MoMo) and Vodacom’s VodaPay. Such arrangements have to be approved by the SARB. The position paper further allows for the creation of an e-money PCH to ensure interoperability between different e-money arrangements.
It is notable that all of the existing e-money schemes of which PASA is aware allow for funding of the e-money store of value via the NPS, creating some level of interoperability as EFTs and Cards may be used to fund the e-money wallet. Nonetheless, no interoperability has been created to-date between the different e-money schemes.
PASA’s approach to creating new PCHs is simple and well-articulated. All that is required is for two PASA members to approach PASA to support a new payment system, and for those two PASA members to agree on a PCH System Operator (PSO) who would switch transactions between the parties. In other words, two banks currently supporting e-money schemes could initiate the creation of such a PCH to create interoperability between the e-money schemes. We speculate that none of the current e-money scheme providers currently see a commercial case for such interoperability, and therefore there is limited impetus to create the PCH in question.
We take note of the benefits listed of a potential Mobile Money PCH and the reference to interchange fees. Interchange fees are set by the SARB, who recognise that they are an important component in incentivising interoperability. It therefore cannot be assumed that interoperability between different mobile money schemes would be created without interchange fees, and it is certain that some level of processing fees would be incurred to support switching transactions between the schemes.
PayShap as alternative
The recently launched PayShap instant payments system is intended to give consumers cheap and convenient access to digital payments. The system itself can technically support any store of value, but the implementation is limited by the prevailing regulatory framework. Non-bank payment service providers can use PayShap, but it must be through the sponsorship of their bank. PayShap at inception supports proxy payments (e.g., payments to a mobile number). Over time, PayShap functionality will expand to incorporate QR codes and Request to Pay functionality. Existing mobile money schemes can access PayShap via their banks.
The changing regulatory regime
In September 2018, National Treasury published a Policy Paper entitled “Review of the National Payment System Act 78 of 1998”. This paper incorporates greater inclusion and access to NPS by non-banks, through moving to activity-based (as opposed to entity-based) licensing. It is anticipated that these regulatory changes will be given force through the promulgation of the Conduct of Financial Institutions Bill and consequential amendments to the NPS Act during the course of the next year. As a consequence of these changes, PASA will transition to a new Payments Industry Body (PIB), co-designed by the broader payments industry, and allowing membership of all payment service providers, including mobile money issuers. It is anticipated that the current PCH structure will fall away as part of the regulatory reforms, but that interoperability will continue to be maintained through new structures created in the PIB.
Under the current regulatory regime, mobile money issuers must be banks, or must partner with a bank. There is, however, no regulatory reason preventing the constitution of a mobile money PCH, providing that there are willing participants. Forthcoming changes to the regulation are anticipated to create a regime where non-banks can be licensed to provide payment services without partnering with a bank. The same changes to the regulatory regime will result in PASA transforming to a new PIB, and changes to the current PCH construct. Nonetheless, interoperability arrangements will continue to be maintained, and interoperability between mobile money issuers could equally be created under the new construct.