Numerous South African eCommerce players have been accused of “sorting at source”, which is prohibited by the Payments Association of South Africa (PASA).
Sorting at source is the practice of an eCommerce company having multiple bank accounts with a number of different banks.
A payment service provider will sort the payment instructions per bank and relay them to each respective bank – which would in turn process them as “on-us” transactions.
Using a sorting at source model reduces interbank clearing, which generally occurs through Bankserv.
While the model may sound like a logical way to reduce costs and increase the speed of clearing funds, it is prohibited under PASA’s policies and rules.
PASA CEO Walter Volker said sorting at source will result in the erosion of current interoperable payment systems.
It will also result in the market being dominated by a few players, which will provide payment services on a fragmented basis.
The South African Reserve Bank issued a sorting at source notice in March 2017, where it supported PASA’s stance.
The SARB said it is in the process of amending regulatory frameworks to address sorting at source.
This is necessary to ensure the efficiency and interoperability of payment systems, promote access and competition, encourage innovation, and protect transparency, it said.
Local eCommerce players involved
MyBroadband has received a list of South African eCommerce players which engage in sorting at source, which includes prominent companies.
The SARB also confirmed that certain payment system stakeholders, which include retailers and system operators, are involved in sorting at source.
Volker said as soon as the practice of sorting at source is identified, each case is investigated and taken up with the company directly.
“In most instances, measures and timelines to correct this practice is agreed. In certain instances, a more formal compliance enforcement approach may also be adopted,” said Volker.
One industry player, who asked not to be named, said certain companies provide payment solutions services using sorting at source.
“We understand that PASA is currently engaging with the competitors to ensure that SOS models do not continue with immediate effect,” he said.
“They will also be imposing penalties on companies who engage in SOS once the necessary regulations are passed.”