An address by Francois Groepe,
Deputy Governor of the South African Reserve Bank,
at the National Payment System Department's
annual end-of-year cocktail function
Kleinkaap Boutique Hotel, Centurion
5 November 2018
Good evening, ladies and gentlemen, colleagues.
It gives me great pleasure to welcome you to the annual National Payment System
Department's (NPSD) cocktail function.
This has been a year in which we had more reason to celebrate, as 2018 marked the
20-year anniversary of the South African Multiple Option Settlement (SAMOS) system.
Also of significance was the fact that the Southern African Development Community
(SADC) RTGS system, previously known as the SADC Integrated Regional Electronic
Settlement System (SIRESS), turned five this year.
Consequently, my address will firstly reflect on the journey of the SAMOS and SADC
RTGS systems, respectively, focusing on highlights and also outlining the goals that
we plan to achieve. Thereafter, I would like to reflect on the opportunities offered by
financial technology (fintech).
The SAMOS system
In April 1994, the South African Reserve Bank (SARB) launched a project to reform
the South African national payment system (NPS) and formulated a strategy that
would enable South African banks and other intermediaries in the payment system to
align the needs of the domestic economy with developments in the international
community.
A strategy-formulation team, consisting of representatives of the SARB and the
banking community, was established, and a collaborative consensus-building
approach was adopted. The SARB acted as facilitator and, in a period of 14 months,
produced the first draft of the document titled The South African national payment
system: framework and strategy, commonly known as the Blue Book.
A number of projects were initiated to realise the envisaged goals of the NPS
framework, as documented in the Blue Book. One of the key projects, and the
cornerstone of the new payment processing infrastructure, was a project to implement
a new RTGS system that would enable settlement between participating banks in
central bank money with finality and irrevocability.
On 9 March 1998, the SAMOS system was implemented, on time and within budget.
Considering the complexity and multi-organisational nature of the project, this was
indeed a remarkable achievement.
The new settlement arrangements facilitated by the SAMOS system placed South
African settlement practices on par with international best practice and presented
many opportunities to the banking and non-banking sectors. Among others, these
included:
•
the enablement of open access and participation of all the registered South African
banks in the system;
•
the provision of facilities to participating banks to monitor their exposures in real
time by having access to balances in settlement and intra-day-loan accounts, as
well as a view of the utilisation of collateral;
•
the enablement of the SARB, through various system facilities, to ascertain when
banks in the system are experiencing difficulty in meeting their payment obligations,
and the ability to provide early-warning signals of a potential systemic crisis
(resulting in the SARB being able to proactively take steps to address a potential
systemic crisis);
•
the achievement of payment settlement finality through the SAMOS system,
providing an opportunity to synchronise the delivery of scrip after confirmation of
payment, thereby creating a safe and secure financial markets environment; and
•
the enablement of payer-to-beneficiary fund transfers in real time.
The SAMOS system has evolved over the years, adapting to market needs through
the implementation of improvements that have optimised liquidity utilisation and
collateral management, embracing international best practice, and providing
monitoring facilities for regulators within the central bank to effectively execute their
mandates.
The SARB is currently working with the payment industry to replace the existing RTGS
system with a new-generation RTGS solution that will address current business
functionality and cater for evolving business and technical requirements. Some of
these requirements stem from advances in the fintech field and related innovation,
regulatory changes, as well as the ever-evolving business landscape. The new system
must enable modular design, quicker development turnaround times, and reduced
time to market for changes in the payment environment and cater for multi-currency
functionality. The new system will offer rich message content utilising the ISO1 20022
message standard.
The South African banking industry has shown that it has the capacity, both in terms
of business knowledge and in terms of technology skills, to progress our payment
system. NPS stakeholders have not only contributed skills; they have also had to make
substantial investments in back-office systems and technology to enable them to fully
participate in the system throughout the years.
The opportunity for banks and non-banks to cooperate and collaborate to leverage the
potential of the SAMOS system ushered in the dawn of a new era in the provision of
payment products and services.
The SADC RTGS system (formerly SIRESS)
The SADC RTGS system, formerly known as SIRESS, was developed as a catalyst
to support the regional financial integration agenda towards the realisation of SADC's
aim of facilitating trade and investment in the region. Prior to the implementation of the
SADC RTGS system, regional cross-border transactions were settled via
correspondent banking arrangements, which are prone to counterparty risk, lags in the
settlement of these transactions on a T+1 or T+2 basis, and short cut-off times.
The system was implemented through a public-private partnership between central
banks and the commercial banking industry. The role that other partners played in the
project - partners like the Finmark Trust, the European Union, the World Bank, the Bill
and Melinda Gates Foundation, and the International Monetary Fund (IMF) - is also
appreciated and valued.
The system currently settles transactions for 82 participating banks drawn from
14 countries across the SADC region. Since July 2013, it has settled over 1.2 million
cross-border transactions and a cumulative peak value of R5 trillion, which was
reached in October 2018.
A project is currently underway to replace the SADC RTGS platform with a solution
based on modern technology, which will provide, among other things, multi-currency
capabilities, flexible settlement windows per currency, and re-engineered business
processes to support the possible future business needs that could utilise distributed
ledger technology (DLT).
Vision 2025
It is imperative that we continue to build on our legacy in our quest to enhance the
safety, efficiency and accessibility of the NPS in a manner that promotes competition
and minimises risk to the payments ecosystem. As outlined in Vision 2025, we will
pursue this objective by leveraging technological developments to extend the
availability of digital payment services to all sectors of society while meeting domestic,
regional and international requirements for the benefit of all members of South African
society.
The NPS affects the lives of all South Africans. Essentially, it exists to serve the
economy and, through it, the people of South Africa. It is a crucial enabling factor for
economic activity among consumers and businesses. Payment systems can, for
example, enable seamless links to public transportation.
A recent study by Visa titled The cashless cities: realising the benefits of digital
payments2 reveals that, should Johannesburg reach a state where 100% of
transactions are digital, the city would gain just under US$500 million in net benefits
cumulatively for consumers, business and government per year. The study further
suggests four main long-term benefits over the next 15 years: an increase in
employment, an increase in the gross domestic product (GDP), and marginal
increases in wages and productivity.
The emergence of fintech, the Fourth Industrial Revolution and the continuing shift
from the industrial to the digital economy all hold significant benefits and could
materially contribute towards lifting the growth potential of our economy. I would like
to demonstrate this by referring to examples of other countries that have not only
embraced technology, but that are reaping the fruits from their foresight.
The potential of fintech
According to Financial Sector Deepening Africa, a development finance organisation,
fintech is expected to contribute at least US$40-150 billion3 to sub-Saharan Africa's
economic output by 2022. In a similar vein, Accenture's Pivoting with AI report4 states
that embracing artificial intelligence, in-process automation and augmenting human
capabilities could potentially double the size of South Africa's economy in a few
decades. However, the most compelling evidence for the potential of fintech comes
from some small countries in Europe and many from the East. The Digital Revolution
has increased the growth potential in these countries.
Estonia
A country leading the charge in embracing fintech and setting the pace towards the
digital economy is Estonia. It is a small country, with minimal natural resources.
In 2018, there are only three things you cannot do online: get married, get divorced,
and buy real estate. Everything else largely happens digitally.
Estonia has introduced e-identity, digital signatures, e-Residency and i-Voting. The
Estonian Entrepreneurship Growth Strategy 2020 outlines the strategy for the
Estonian economy for the next seven years, focusing on three main challenges in
order to increase the wealth of Estonia: increasing productivity, stimulating
entrepreneurship, and encouraging innovation.
Allow me to quote some resounding statistics marking the success of some of
Estonia's efforts.
Savings and efficiency:
•
At least 2% of GDP is saved due to the collective use of digital signatures.
•
Every year, 840 years of working time is saved thanks to data exchange.
•
The time to establish a business has been reduced from 5 days to 18 minutes.
Financial indicators:
•
98% of Estonian companies are established online.
•
99% of banking transactions are online.
•
95% of tax declarations are filed online - it takes only 3 minutes!
e-Government indicators:
•
98% of Estonians have a national identity card.
•
Over 30 000 people have applied for e-Residency.
•
Over 30% of Estonian voters from 116 countries use i-Voting in Estonian
elections.
Healthcare:
•
97% of patients have countrywide-accessible digital records.
•
99% of prescriptions are digital.
•
There are 500 000 queries by doctors and 300 000 queries by patients every
year.
These are just some examples of how a small country can gain competitive advantage
by embracing digital enablers that lay a foundation to rapidly move towards the digital
economy.
Singapore
Another good example is Singapore. Singapore has adopted a Smart Nation policy,
which means that they embrace technology in all their processes and encourage
technological innovation and adoption.
The Monetary Authority of Singapore (MAS) has identified 10 enablers to shift towards
the digital economy. One of these, similar to Estonia and India, is the ability of citizens
to store their basic identification electronically. In Singapore, this initiative is called
MyInfo.
MyInfo is a one-stop data repository that saves time in not having to capture basic
information over again. It is a single online personal data platform. It includes your
personal information, such as your unique identification number, name, gender, age
etc. It can also include your education, employment and income information. Such
access enables quicker completion of digital online artefacts by using the application
programming interfaces (APIs) of MyInfo.
The MAS has also released its Industry Transformation Map (ITM) for financial
services. Their vision is to be a leading global financial centre in Asia. The ITM aims
to achieve real value-added growth of 4.3% and productivity of 2.4% annually in the
financial sector. The ITM also aims to create 3 000 new jobs in financial services and
an additional 1 000 new jobs in the fintech sector annually.
China
Digitisation has also reshaped financial services in China. Less than a decade ago,
the Chinese e-commerce retail transaction value accounted for less than 1% of the
global value. This figure has risen to almost 40% today as a result of the efforts by
giant fintech firms such as Alibaba, Tencent and Baidu.
In 2016, mobile payments for goods and services in China totalled US$790 billion -
11 times more than in the United States. Research by the IMF5 shows that a
1 percentage point growth in the digitalisation of China's economy is associated with
a 0.3 percentage point growth in its GDP.
The examples from Estonia, Singapore and China signal the potential of fintech and
the shift towards a digital economy. They are also examples of the role that
governments and central banks can play in creating an enabling environment for
fintech.
There are predictions that such efforts can add significantly to the GDP of an economy.
Some anecdotal estimates are between 0.5% and 1.5% of GDP. Toomas Hendrik
Ilves, a former President of Estonia, has signalled how such results could be achieved.
He has emphasised: "It is not about focusing on the technology itself; it is about the
political will, vision, policy, laws and regulations ... in that order."6
The potential in South Africa
In South Africa, economic growth has been stagnant. The issues of growing inequality,
rising unemployment and increasing poverty are major challenges.
I would suggest that it is not only time that we do something differently; it is time that
we do things digitally. The financial services industry has strong potential and
capability to come together and collaborate towards building and influencing shifts
towards a digital economy. To name a concrete example, Project Khokha provided a
glimpse of this potential to work together, embrace new exponential technologies, and
jointly explore future opportunities. It is time that we leverage this strength in working
jointly for the greater good of SA Inc.
At the inaugural workshop of the Intergovernmental Fintech Working Group in
April 2018, the participants highlighted that a South African digital identity may result
in increased financial inclusion and deepening by making it easier for South Africans
to access financial services.7 This provides just one opportunity for the respective
authorities and the industry to possibly pursue in order to build a digital foundation and
contribute towards the longer-term digital well-being of South Africans. The workshop
also highlighted the need for a national innovation policy framework. I would suggest
that such a policy would equally contribute towards a vision and an enabling
framework propelling a digital economy. It could be one aspect of helping us to improve
our position on the World Economic Forum's Global Competitiveness Index.8 We have
dropped from being ranked 49th in 2015/16 to being 61st in 2017/18.
Aligned to Vision 2025 and centred on leveraging innovations in the fintech
environment, the SARB will host a workshop next year for regulators, overseers,
policymakers and government that will focus on unlocking any inefficiencies within our
current processes and platforms to stimulate economic growth.
The workshop will provide an opportunity for parties to gain deeper insights into the
various innovations available, including open banking and APIs, and will take
advantage of the SARB's relational capital to start a debate and craft a national
strategy that will journey South Africa into the digital future.
The workshop, while designed to facilitate a unified vision around our digital future, is
also intended to form the foundation on which the annual Innovation and Cybersecurity
Conference will further expand.
Closing
The SARB would like to thank all of you for the role that you have played in creating
this world-class payment system, and hopes that you will also join us as we collectively
continue in our endeavour to design and create a better NPS for all.
I would like to conclude with a quote from Adam Smith: "No society can surely be
flourishing and happy of which by far the greater part of the numbers are poor and
miserable."
I modestly add to this by saying: embracing fintech and moving towards a digital
economy holds the potential for growth and collective prosperity.
Thank you.