Where Does All the Money Disappear To?

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CIARAN RYAN: PayInc, previously known as BankservAfrica, holds a distinctive role within South Africa’s payment infrastructure. A key goal of the organization is to promote financial inclusion by catering to the unbanked and underbanked populations.

Recently, it introduced the PayInc Economic Index, which assesses the total value of electronic transactions processed via PayInc monthly, now including cash demand in the economy as well. This index interestingly offers early indications of economic trends ahead of Stats SA’s data releases.

Joining us now is Shergeran Naidoo, head of stakeholder engagements at PayInc. Hi Shergeran, thank you for being here. I’d like to discuss the PayInc Economic Index shortly, but first, can you elaborate on PayInc’s role in South Africa and its functions?

SHERGERAN NAIDOO: Hi Ciaran, thank you for having us and providing this opportunity. PayInc, previously known as BankservAfrica, has a history spanning around…53 years. That’s right – since 1972.

We serve as a ‘payment clearinghouse system operator,’ essentially acting as a bridge between banks to facilitate the movement of payments, thereby enabling ‘interoperability.’ Interoperability is vital in the national payment system as it ensures payments can flow securely and systematically among parties with established controls and rigorous technology.

We are closely regulated by the South African Reserve Bank’s National Payment System Department. We are designated as a ‘systemically important payment system financial market infrastructure.’

This designation reflects the considerable volumes and values we handle annually, which the Sarb deems essential for the smooth operation of the South African economy.

I hope that clarifies our position and the significance of our role within the national payment system.

CIARAN RYAN: I’m curious about who owns PayInc?

SHERGERAN NAIDOO: PayInc is owned by the banking sector. When we were established in 1972, it included primarily the major banks of that era with the goal of facilitating payment ‘clearing,’ which was chiefly about cheque processing. Do you remember those? [Chuckles]

In those days, our function was to enable cheque clearing. Over the last fifty years, payment methods have progressed from cheques to cards, electronic payments, and more.

To answer your question about ownership, it has always been rooted in the banking industry, as the banks are the primary participants in the National Payment System Act context. PayInc remains owned by the banks from its inception to now.

You may have seen in the media that discussions are underway between the Sarb and PayInc shareholders regarding acquiring a 50% stake in PayInc, which is currently pending approval from competition authorities.

CIARAN RYAN: One of your key objectives is financial inclusion—a term we often hear. Let’s discuss how PayInc works towards involving more people in this measurement and in the economy.

SHERGERAN NAIDOO: As you noted, financial inclusion is a commonly used term that varies in meaning. Within the payments sector, this topic is acknowledged, even at the World Bank level, where papers have been written on payments and financial inclusion.

The Sarb’s Vision 2025, a strategic framework for the National Payment System, aims at driving financial inclusion. This means integrating more unbanked and underbanked individuals into the main national payment system, allowing them to engage in digital payment transactions.

The logic here is that by increasing the number of digital payments made through the National Payment System, individuals build greater digital footprints, thus gaining access to a wider array of financial products.

Access to other financial products, such as loans or credit, empowers individuals and small businesses. This approach brings more people into what’s termed ‘financially included.’

That’s the perspective we embrace regarding digital financial inclusion.

CIARAN RYAN: Gathering all this payments data sounds like a complex operation. I assume you collaborate with numerous stakeholders. Can you share more about who connects to PayInc and contributes data?

SHERGERAN NAIDOO: The data utilized in our economic indices is sourced from the transactions we process.

As I mentioned earlier, we operate as a payment clearinghouse system operator, following the requirements of the National Payment System Act. For example:

If you have a gym membership with Bank A while your account is with Bank B, the debit order for your gym fee must route through PayInc since you and your gym are with different banks.

If you both bank with the same institution, that transaction would go through that bank’s internal systems, referred to as an ‘on us’ transaction. However, if you’re with separate banks, it’s an ‘off us’ transaction through PayInc.

Now, scale that example up to millions of transactions, including electronic funds transfers (EFTs), PayShap transactions, RTC (real-time clearing) transactions, and some card transactions, which we monitor through our systems. For the PayInc Economic Index, we specifically focus on electronic payment system transactions and the data derived from them.

Additionally, we consider cash movements in our new economic index. One of the systems we operate, the Integrated Cash Management System (ICMS), tracks cash movement between banks.

However, a challenge we face is the difficulty in tracking cash usage in society.

Due to cash’s inherent anonymity, we can’t track its use after it’s dispersed. But in terms of the National Payment System and since banks order cash amongst themselves through PayInc, we can monitor and incorporate this data into the economic index, providing a complete view of payment activities and cash utilization.

CIARAN RYAN: Let’s dive into the PayInc Economic Index. This is a new or perhaps relaunched index, correct?

SHERGERAN NAIDOO: Exactly, it’s a relaunch.

CIARAN RYAN: I noticed that transactions cleared through PayInc reached a record R177.8 million in August, indicating nearly a 10% year-on-year increase. I imagine this is quite beneficial for decision-makers in companies and government; it seems like a deliberate structure—you’ve also included cash in this analysis.

SHERGERAN NAIDOO: That’s right. This growth signifies progress towards our goal of enhancing digital financial inclusion, as these soaring volumes demonstrate. For instance, in 2023, the figure was around R145 million, and now it’s at R177.8 million.

This indicates a growing trust in utilizing digital platforms for payments, particularly for smaller transactions.

One trend we noticed is that the value of transactions has declined, dropping from R1.351 trillion in August to R1.405 trillion in July. This indicates a rise in smaller transaction volumes, suggesting a decrease in cash utilization.

Interestingly, while we’ve included cash in our analysis and noted a 4.4% increase in cash usage, there’s a shift occurring. Recent reports indicate that many banks are withdrawing from their ATM infrastructure, with only a couple expanding theirs; instead, they are relying more on retail networks for cash transactions.

Thus, while ATM cash utilization may be down, retail environments are witnessing increased cash activity, with banks supplying retailers with cash for those transactions.

This all highlights our ongoing effort to balance the coexistence of digital payments and cash.

The Sarb is also pushing towards a ‘smart cash society’ to harmonize cash and digital payments.

CIARAN RYAN: This is truly fascinating. I appreciate your insights, Shergeran; we’ll conclude here. Thank you very much.

SHERGERAN NAIDOO: Thank you, Ciaran. I appreciate it.

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