Sarb plans ATM and cash system transformation

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JIMMY MOYAHA: This week, the South African Reserve Bank announced that it would continue – as part of its modernisation efforts – to overhaul South Africa’s cash system. And surprise, surprise, the focus point here is on ATMs. The Reserve Bank, through the creation of a cash-management company, is potentially looking to roll out universal ATMs, which means you and I as consumers would finally be able to use any ATM to access our funds.

Read: South Africa set for biggest cash-system overhaul in decades

For more on this I’m joined on the line by the head of the Payments Ecosystem Modernisation Programme at the Reserve Bank, Pradeep Maharaj, to take a look at this and see what we make of it. Pradeep, lovely to have you on the show. Thanks so much for taking the time.

Let’s first start by giving some of our listeners a bit of context around the modernisation programme and the efforts of the Reserve Bank – and why these programmes are in place.

PRADEEP MAHARAJ: We start with a programme that looks to digitise payments in South Africa. What we want to do is bring digital payment options to every person in this country. They must have that choice, and it should be at a fairly low cost or no cost. It should be very secure and very safe and should cost very little.

In doing that, we will see a reduction in cash. Currently, 62% of South Africans rely on cash for their daily transactions. We’d like to see that come down dramatically.

While providing digital payment options, we will drive better social development outcomes and we could be adding to economic growth.

Listen: ATMs closing across SA: Will we become cashless?

In any case, digital payments will act as a necessary but not sufficient condition for greater financial inclusion. Of course, in doing that, seeing cash come down, we’ve now got a strategy that responds to the challenges of the cost of cash, the accessibility of cash in the economy, and to ensure that those who do rely on cash will also see a dramatic reduction in the cost of that cash, as well as increased accessibility of that cash.

JIMMY MOYAHA: Now, Pradeep, from a modernisation perspective we know that moving to a digital payment infrastructure is not going to be something that happens overnight, especially given that South Africa moves about R180 billion in cash in a single year. For a lot of people, as you rightly mentioned, that is the way they transact primarily.

If we’re now looking at this cash-smart strategy and the modernisation and potentially making cash more accessible, what does that mean for how we reform what is currently there? Currently, a lot of the banks have their own ATMs. What would universal ATMs even mean?

PRADEEP MAHARAJ: Universal ATMs – and in central banking terms, financial terms, what we call ‘white label’ ATMs – means that there’s no branding of a particular brand of financial institution whose ATM is recognised.

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It would be a universal ATM. Therefore it doesn’t matter which institution holds your account or your store of value; you will be able to access that cash at any of the ATMs without any additional charges or costs, which means that the cost of using the ATM then comes down dramatically.

Currently if you go to a garage you will see four ATMs lined up against each other, all different banks. What we will do is remove three of them, leave one, make it a ‘white label’ and use the other three in areas which are underserved at this point in time.

This means that without wanting to invest in more ATMs, you actually increase the accessibility of cash through ATMs across the country.

JIMMY MOYAHA: Pradeep, we have seen white-label ATMs in the past. We’ve seen other operators offer this to South Africans in the past, and the main concern there was around the rates for a lot of the banks and a lot of the relationships between the banks. This came at a significant cost to the consumers.

How is this modernisation programme or this modernisation strategy going to look to address that aspect of it from a banking perspective? Are we saying that from a central bank perspective there’s going to be a mandate that the commercial banks need to execute on – which then creates that affordability?

PRADEEP MAHARAJ: Yes. We’ll do a few things. One is that we will rationalise the infrastructure that serves cash for the demand in the country. We’ve got 112, 113 cash centres around the country today, all in private-sector hands.

We’d want to bring that into the utility function and rationalise that, which means that the cost of getting cash to an end user will drop.

The number of movements of vehicles moving cash will also reduce dramatically.

Then you go down the route of white-label ATMs. Again, you will rationalise that infrastructure. You will locate them better and you will reduce the movement of cash to those ATMs and back. In doing so, you reduce overall costs. Because they’re going to be white-label ATMs you will do away with what we call today ‘interchange’.

Interchange is a fee set by the South African Reserve Bank that allows for – if I’m banking at bank A and I go to an ATM that’s provided by Bank B – a cost of using that ATM that I will pay, because that’s an interchange [fee] between Bank A and Bank B in order to use their facility.

Listen/read: How the Sarb’s new payments exemptions will affect consumers

What we’ll do is do away with all of that. Therefore the cost to the end user will come down quite dramatically.

JIMMY MOYAHA: Pradeep, what does this mean for the retailers? We know that a lot of cash transactions are facilitated by the likes of the Shoprite Group, the Pick n Pay Group, the Spar Group. What does this mean in terms of modernisation for accessing cash at retail till points? Is that going to be affected as part of this modernisation strategy?

PRADEEP MAHARAJ: We are proposing that we have discussions with the big retailers. The third leg of our modernisation strategy is to deal with ethical cash. ‘Ethical cash’ refers to a regulatory framework, a licensing framework for the handling of cash.

What we’d like to see is that put a framework together that allows you to license wholesalers of cash.

The retailers Pick n Pay, Shoprite, Spar and a whole range of others could then apply for a licence and be treated as a wholesaler, which means that we propose to them that they become part of the utility and access this cash directly from the utility, so their cost of cash will come down as well and, again, impact on the end users’ cost of cash and also make it more accessible.

And then we will normalise what an interchange should be, what the retailer would be able to charge at the till for cash in or cash out.

JIMMY MOYAHA: Pradeep, before I let you go, from a modernisation perspective this obviously is an ongoing programme that hasn’t just started now and won’t end anytime soon. Do we have kind of timelines around when we might expect to see some of these rollouts happening – or at least when consultation with the market and with industry could take place?

PRADEEP MAHARAJ: We announced the strategy two weeks ago. We’ve begun consultation with the industry and we are hoping to broaden that consultation in January and February. We’d like to have a draft kind of discussion paper around licensing and the framework around regulating cash sometime by the end of March, sometime in April.

We think that we can start to run out phase one of a white-label ATM solution towards the end of next year.

Hopefully, if all things go well we’ll also have the utility function up and running by then. This journey will take us probably two to three years.

Read: As banks close branches, Africa’s unbanked face a digital divide

However, we are quite keen to start to see some low-hanging fruit beginning to [materialise] in servicing the needs of the people who rely on cash. Generally the most vulnerable are those who can least afford the high costs associated with cash.

JIMMY MOYAHA: Modernising South Africa’s payment and monetary systems to ensure that greater accessibility is achieved and there is a reduced reliance on cash – that is the aim of the South African Reserve Bank. We’ll keep an eye on these efforts and see how they continue to unfold.

We’ll leave this conversation on that note, though. Thank you so much to the head of the Payments Ecosystem Modernisation Programme at the South African Reserve Bank, Pradeep Maharaj, for joining us to take a look at their efforts and what this would mean.

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