The government has drawn up an ambitious plan to reduce cash transactions through a digital payment platform that can be used by South Africans at no charge.
Business Times has seen a written submission compiled by Operation Vulindlela — a Presidency and National Treasury initiative to speed up the implementation of economic reforms — proposing the introduction of a free real-time digitised payment system.
As part of phase 2 of Operation Vulindlela, a wallet for citizens to access their IDs, driver’s licences and other documents digitally is also being mooted. Phase 1 was instrumental in speeding up key reforms, including the introduction of private operators on the railway network and the removal of the energy generation threshold.
“[To] introduce digital payments for cost-effective and dignified transactions, [it is proposed that the government] enable real-time payments at no cost through multiple channels to reduce cash transactions, and establish a payment bridge for government departments and agencies to make payments to citizens directly,” the submission reads.
The proposal seeks to place South Africa on par with developed countries and developing economy peers that are rapidly moving towards cashless transactions. It comes in the same week that the Reserve Bank undertook to devise regulations allowing digital payment firms to make and accept payments without a banking intermediary.
The PEM programme, particularly the establishment of a national payments utility and fast payments system, will ensure that people from all walks of life have access to safe, low-to-no-cost digital payment options and services that boost their participation in the economy. It is about making South Africa a ‘cash smart’ society
— SA Reserve Bank
However, Operation Vulindlela acknowledges in the document that South Africa has some catching up to do. The country’s informal economy, which is growing more than 20% every year, is heavily cash-based. Low penetration of smartphones and lower education and literacy rates are also barriers to going cashless.
“As a late starter, South Africa has an opportunity to leapfrog other countries in digital transformation by leveraging the best available technologies. We are behind our peers on key global measures of government transformation,” document states.
The submission further says the Treasury and Reserve Bank must set up a payment bridge-and-switch to enable seamless transactions, expand payment channels, enhance last-mile access, and introduce payment standards and interoperability. It also recommends that the government set up integrated digital systems that can operate across all spheres of its work.
Operation Vulindlela said countries like India, Brazil and Rwanda have moved away from building isolated systems and technologies for individual services and are developing technologies that can be used by multiple government departments to deliver a wide range of services.
Rudi Dicks, head of the Presidency’s project management office, said Phase Two of Operation Vulindlela will include a focus on digital transformation as one of the reform areas.
“The main drive of the digital transformation reform will be to introduce digital identification and digital payments systems. Further details will be provided at the launch of Operation Vulindlela Phase Two.”
The Reserve Bank said on Friday it recently launched a payments ecosystem modernisation (PEM) programme to transform the national payments system.
“As part of its PEM activities, the SARB has been in discussions with other government departments and regulators including the Financial Sector Conduct Authority, South African Revenue Service, and the department of home affairs to develop a digital finance identity and know-your-customer capabilities.”
However, the central bank said it was not seeking to eliminate the use of cash in the economy as cash is a trusted and vital form of transacting for the majority of South Africans.
“While cash is typically seen as a ‘free’ form of payment, it comes with hidden costs such as the cost of securing, storing and transporting banknotes and coins.
“The PEM programme, particularly the establishment of a national payments utility and fast payments system, will ensure that people from all walks of life have access to safe, low-to-no-cost digital payment options and services that boost their participation in the economy. It is about making South Africa a ‘cash smart’ society.”
The Bank said it has been exploring the feasibility of the planned digital payment system with multiple vendors.
“One of the reasons that many people and businesses remain reliant on cash is the lack of acquiring infrastructure for payments such as merchant point-of-sale devices. This is related to both accessibility and cost of this infrastructure and is especially true in rural areas and informal sectors of the economy.
“A national payments utility and fast payments system will drive down these costs, and enable small and informal businesses and traders to accept and make payments at low to no cost. For example, a street vendor could receive payments via QR code from customers using a mobile wallet.”
The Bank said it was working on a legal and regulatory framework that would include interoperability standards and rules for all participants in the payment ecosystem.
“[It includes] the establishment of a national payments utility that will provide services to the payments industry, and that will be supported by a governance model that enables the efficient functioning of the utility.”
It would also require an efficient and low-cost fast payment system, capabilities to support a payments ecosystem, a basic electronic know-your-customer registry and e-signing capabilities.
“[It also requires] the availability and interoperability of low-cost, accessible stores of value for market participants to facilitate digital transactions for all segments of society [as well as] a modernised, safe and efficient real-time gross settlement system.”
A store of value is money, a commodity or assets that can be stored and saved for future use without losing value. At the moment, payment operators without banking licences are required by law to partner with a bank to facilitate payments.
Once the cabinet approves the submission, the Operation Vulindlela unit will engage with government departments and agencies responsible for formulation and implementation of the proposed reforms.
President Cyril Ramaphosa is expected to announce the proposed reforms in this week’s state of the nation address, while finance minister Enoch Gondongwana will outline further details when he presents his budget.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.