Home Payments South Africa public-private fintech projects seek to tackle financial inclusion

South Africa public-private fintech projects seek to tackle financial inclusion

Restaurant tips: one of the four projects aims to digitise tips and ‘other payment transactions’ for low-income workers | Credit: Viktoria Slowikowska (Pexels)

Government-backed fintech initiatives to help with financial inclusion, including the promotion of ‘digital tipping solutions’ for low-income restaurant workers and ‘innovative payments technologies’ for low-value cross-border trade, have been announced in South Africa.

The National Treasury’s ‘2024 Budget Review’ document, published last week (21 February), is largely focused on the economic outlook, fiscal policy and spending plans but devotes two pages to financial innovation to improve competition and inclusion.

‘Government is taking steps to promote the adoption of digital payments, which will help to improve the lives and livelihoods of marginalised groups,’ the Treasury notes in an annex of the 277-page document. ‘Collaboration between the public and private sectors will be key to successful implementation.’

The ‘financial innovation…’ section is split into three areas: cryptoasset policy, tokenisation and ‘supporting small and informal businesses through payments innovation’. The latter of these is covered at greatest length, with the document describing four planned digital payments pilot projects focused on: ‘community digitalisation’, digitising informal and low-income worker payments, cross-border remittances and cross-border trade.

‘The interventions will be implemented from 2024 to 2027,’ states the document, explaining that ‘partners will include financial service providers involved in specific markets and target a combination of new entrants or smaller providers and larger, more established service providers to ensure scalability’.

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Four initiatives planned

For the community digitalisation project, the document explains that people and small enterprisesin townships and rural areas ‘remain reliant’ on cash. The project, which will be piloted in Gauteng, will enable local merchants to establish the infrastructure needed for digital payments, such as internet connectivity and point-of-sale devices.

In respect of the second pilot project, activity aims to digitise tips and ‘other payment transactions’ for informal and low-income workers. It will test what the document describes as ‘various digital tipping solutions in several sites where low-wage and informal workers are concentrated such as shopping centres, petrol stations and restaurants’.

The project focused on cross-border remittances aims to combat money laundering and financing of terrorism risks, with a focus on payments being made to people located in Lesotho, Malawi, Mozambique and Zimbabwe. As part of the pilot, activity ‘will enable retailers and fintechs [companies] in South Africa to provide a digital store of value, such as digital deposit accounts or wallets, for migrants to transfer money digitally across borders.’

The cross-border trade project aims to formalise access to finance for micro, small and medium-sized enterprises engaged in regional trade, with an initial focus on payments before expanding to include other financial needs. Targetting the poor and specifically women, the pilot will ‘encourage the use of new and innovative payments technologies for low-value cross-border trade, guided by the outcome of research on digital payment solutions’.

The initiatives have been developed by the Treasury and South African Reserve Bank (central bank), working with Switzerland’s State Secretariat for Economic Affairs and also an organisation called FinMark Trust, according to the document. The latter organisation, which is based in Johannesburg and has partners including the UK government, Mastercard Foundation and the Bill & Melinda Gates Foundation, aims to ‘make financial markets work for the poor’.

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Crypto and tokenisation updates

The sections of the document on cryptoassets and tokenisation – the representation of assets such as securities and payment instruments on distributed-ledger technology (DLT), commonly known as blockchain – are both shorter.

In respect of the former, South Africa’s Intergovernmental Fintech Working Group published a ‘position paper on cryptoassets’ in June 2021, the document notes, stating that the group will this year publish additions to include ‘stablecoins’ as a particular type of cryptoasset.

In 2023, the Financial Sector Conduct Authority (FSCA) and Financial Intelligence Centre (FIC) began registering the service providers of cryptoassets. In November 2023, the FSCA declared cryptoassets to be a financial product, requiring providers of financial services relating to cryptoassets to be licensed by the FSCA. ‘In 2024, the FIC and FSCA will jointly increase enforcement of unlicensed service providers of crypto assets,’ the document states. ‘The FIC Act [which came into effect in 2003] requires accountable institutions to report all cash transactions exceeding R49 999 (about £2,057/$2,604) to the FIC, as this information may be valuable during criminal investigations. The authorities will consider measures to extend this requirement to transactions concluded with cryptoassets.’

In respect of tokenisation, the document reports that the Intergovernmental Fintech Working Group is considering the impact of tokenisation on domestic financial markets and that a paper will be published by June (2024). A discussion paper will be published by December (2024) that outlines the policy and regulatory implications of tokenisation and blockchain-based financial market infrastructure.

The IFWG was formed eight years ago by authorities including the National Treasury, South African Reserve Bank, FSCA, FIC, National Credit Regulator (NCR), South African Revenue Service (SARS) and Competition Commission.

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