Payments oil the wheels of the economy. Daily millions of payments are made by South African citizens and businesses. South Africans have a wide variety of payment choices ranging from Cash to electronic payments (such as Card, debit orders, mobile payments and real time online internet payments). Every day more than ZAR 350 billion is settled through the National Payment System (NPS).
Non-cash payment instruments facilitate the movement of a claim on a financial institution such as the bank of the payer to the bank of the beneficiary. Financial institutions involved need arrangements (such as a sound legal framework, clearing rules and appropriate infrastructure) to transfer claims in the form of funds between themselves, either on their own behalf or on behalf of their customers. Payment systems are also essential as a key component in ensuring settlement of obligations within the Real Time Line (RTL), equities, bond, money market and derivative exchanges. These jointly represent a significant part of the values settled on a daily basis.
A National Payment System (NPS) however, does not only entail payments made between banks, but encompasses the total payment process. This includes all the systems, mechanisms, institutions, agreements, procedures, rules and laws that come into play from the moment an end-user, using a payment instrument, issues an instruction to pay another person or a business, to the final interbank settlement of the transaction in the books of the central bank.
Within the South African context consumers and corporates have a choice of about 18 different payment systems, which jointly form part of the NPS. These payment systems are governed and regulated by PASA and range from low value debit card transactions to high value bond exchange payments. All these payment instructions are eventually settled at the South African Reserve Bank (SARB).
This however, has not always been the case.
With global efforts to address risks associated with payment systems, and South Africa’s reintegration in the world economy in the early 1990s, it was recognised that an asset as important as the National Payment System (NPS) required better organisation and regulation.
As a result, during 1994, the banking industry requested the South African Reserve Bank (SARB) to take the lead in the modernisation process of the domestic payment system.
The NPS project, which was initiated by the SARB during April 1994, was launched as a collaborative effort between the SARB and the banking industry and the initial focus was to formulate a long-term strategy for the modernisation and development of a domestic payment system. This long term strategy included establishing a sound legal and regulatory framework within which payments could be governed and managed in an organised fashion. The project delivered the framework within which we operate a safe and sound National Payment System today. The framework is discussed in more detail below.