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SA needs smart payment systems to open banking for all - BASA

Johannesburg – Innovative payment methods in the informal sector are needed to give more people access to the financial system, according to a representative from the Banking Association of South Africa (BASA).

Speaking at a briefing on the impact of the Financial Intelligence Centre Act on Monday, Khulekani Mathe, senior general manager of financial inclusion, explained the importance of promoting financial inclusion.

Of the seven billion people in the world, two billion are excluded from the financial system. In South Africa the financial inclusion presented on paper does not match the level of economic activity, he explained.

The banking industry needs to consider promoting access to appropriate products for under-serviced segments of the population, he said. People mostly operate in cash-based economies. Those living in informal settlements need cash to buy what they need. This shows innovation in payments is needed to allow people to transact.

In the light of mobile payment service M-Pesa’s failure, Mathe explained that products - and not necessarily fancy ones - are needed in the market to help informal traders accept payments. The banking industry should consider “fairly inexpensive” ways to transact without using cash in the informal sector of the economy.

M-Pesa has been successful in other parts of the continent. But Mathe pointed out that in the jurisdictions where it has worked, there were fairly underdeveloped financial systems and M-Pesa filled the gap where there was nothing or very little else.

South Africa, a member of the G20, has to adhere to high standards many counterparts on the continent don’t have to, and this allows them to use different methods of transacting.

BASA managing director Cas Coovadia added that having to keep up with international best practice has held the South African financial system in good stead.

“We have a good bank regulator, a proactive bank regulator. It makes banking expensive and complex. We need to have balance between that and room for innovation,” he said.

M-Pesa was introduced by a mobile operator in Kenya, which was not “drowned” in banking regulation. Once there was a realisation that it introduced risks to the system, regulations were developed. But these were not subject to banking regulations like Basel III which is what South African banks are subject to, he explained.

One of the reasons M-Pesa did not work in South Africa was because it was linked to a bank, subject to bank regulations. South Africa’s banking system needs innovation, which does not impact negatively on the regulatory environment, he said.

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