Banks in South Africa are being forced to open up the payments system to newcomers and slash transaction charges, writes Michael Imeson.

What is it?

South Africa’s banks have been told that their control over the National Payment System (NPS) is too strong and that their transaction charges are too high. A public enquiry has been set up to help decide what action to take.

Who dreamed it up?

The bully-boy is South Africa’s Competition Commission. It published a report in April, The National Payment System and Competition in the Banking Sector, which identified the ‘problems’ and recommended an enquiry to find the solutions.

What are its main provisions?

The enquiry is considering two proposals: first, that the NPS, which is controlled by the main banks, should be made more accessible to second-tier banks and non-banks; second, that bank fees for payments should be cut.

The enquiry is in five stages:

What’s in the small print? 

Section 5 (a) (iii) of the enquiry’s terms of reference says – in a catch-all phrase – that, in addition to the two main issues, it will look at “any other aspect relating to the payment system or the above mentioned charges which could be regarded as anti-competitive”.

What does the industry say? 

The Banking Association of South Africa (BASA) is contrite. It says the NPS is highly efficient and more advanced than similar networks in more developed countries. However, it concedes that access to the NPS should be improved, and says members are already engaging with non-banks to establish new payment mechanisms.

How much will it cost? 

There are no estimates of the cost of opening up payments to newcomers, but slashing transaction charges will hurt. The Competition Commission calculates that banks earn “roughly” R29bn (£2.02bn) a year from payment system-related charges, 38% of their revenue, so a 10% cut in charges would lose them R2.9bn.

What do the regulators say?

Acting commissioner Shan Ramburuth says: “The main competition concerns… are related to bank charges and access to the national payment system. The effect of both of these on the provision of competitive banking services for all South African consumers (be they businesses or individuals) underpin the enquiry.”

The law of unintended consequences

If institutions lose market share to new payments providers, and billions a year to consumers in lower transaction charges, they may try to recoup their losses from elsewhere – perhaps by increasing loan margins or raising fees for other financial services.

Could we live without it?

The enquiry is a waste of time because banks are already taking steps to implement its proposals. But why let that get in the way of a good red tape thrashing? Authorities all over the world are throwing their weight around – witness the EU’s retail banking enquiry, which includes payments systems and charges (see October’s Reg Rage) – and then telling their victims there is no point crying about the situation as it is happening everywhere else.

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