The South African Reserve Bank (SARB) published a consultation paper on Wednesday 3 March asking for comments on its plan to launch a new domestic card and payment scheme.
The SARB said this plan would form part of the National Payment System (NPS), which encompasses the entire payment process, from payer to beneficiary, and includes settlement between banks.
It added that the NPS contributes to the economy and financial stability in South Africa, stating that a card scheme is a key component of the plan.
“In South Africa, Visa and MasterCard have dominated the card scheme market. In 2019, approximately 48.8 million cards were in circulation in South Africa, and 5.6 billion transactions to the value of R2.1 trillion were processed,” the SARB said.
“This is an increase in volume of 16.2% and in value of 15.6% compared to 2018. A card scheme is therefore a key component of the NPS.”
Launching a domestic card scheme could help to serve the unbanked market in South Africa and increase competition by taking on Visa and Mastercard.
Domestic card scheme explained
The card scheme posited by the SARB in its consultation paper refers to the creation of a card payment network for domestic use only.
Eligible institutions could become licensed members of this network and issue cards bearing the logo of the scheme. This is similar to the issuance and acquisition of Visa and Mastercard cards in South Africa.
Fees are charged according to the transaction flow of the card payment network.
The SARB pointed to the success of national white label schemes of this nature that were deployed in Norway and other countries as a potential model for emulation.
It noted that it would need the collective support of many stakeholders, including card issuers, card acquirers, retailers, consumers, regulators, policymakers, and more.
To this end, the SARB is interested in obtaining views from all relevant stakeholders regarding the potential for a domestic card scheme that could compete with Visa, Mastercard, American Express, and other schemes locally.
Cheaper than major brands
One of the biggest drawbacks of this NPS card scheme would be that users could not use the domestic bank cards outside of South Africa or, potentially, the South African Development Community.
However, the SARB cited a banking enquiry published in 2008 that noted: “most South Africans have no immediate need of a card that can be used overseas”.
Additionally, having a domestic card scheme may result in lower transaction fees due to the lack of international payments, which would directly benefit consumers and allow the NPS card to be competitive with major players.
“This raises the question regarding the scope for developing white-label or locally branded cards as cheaper alternatives to the brands of the major card schemes,” the SARB said.
The SARB outlined the basic three-party and four-party models for major card schemes globally, as well as the fees involved in processing transactions, and requested feedback from stakeholders on the best way forward.
It also seeks to establish whether merchant service fees are unreasonably high in South Africa and whether lower fees would lead to lower prices for goods and services if paid for using a domestic card.
Stakeholders are invited to share their comments on the consultation paper by 31 March 2021. The full document is embedded below.