The establishment of regional cross-border payment systems in Africa will go a long way towards addressing concerns that have arisen about the general reduction in correspondent banking relationships globally.
They will also bring about greater efficiencies in the payments process, South African Reserve Bank (SARB) Governor Lesetja Kganyago said, speaking at the 22nd SWIFT African Regional Conference (ARC) held in Cape Town,
Kganyago said the SADC Integrated Regional Electronic Settlement System (SIRESS), launched in July 2013, is already having a significant impact on cross-border payments – 43% of intra-SADC payments were now taking place through SIRESS. “By the last week of April this year, SIRESS had reached the R1-trillion settlement mark.”
Attended by almost 450 delegates from more than 40 countries, the three-day conference has brought together policymakers, industry leaders and the broader financial community from across the African continent.
Cross-border payments within Africa are in the main still made through correspondent banking relationships with banking partners in the US and Europe, however, data shows that there has been a reduction in the number of these relationships. It is unclear if the drivers of the reduction relate to new financial crime regulations, an increase in cross-border money remittances or competition from transfer companies.
“If the decline is the result of establishing efficient settlement systems across borders, then this is a welcome development. However, if it is flowing from the unintended consequences of changes in regulation, then it would be a matter of concern,” says Kganyago, adding that regional initiatives such as SIRESS resulted in more efficient transacting mechanisms within regions and offered greater control for transacting parties.
Against the background of new financial crime regulation, Kganyago says global banks may be apprehensive about high risks of uncertainty in facilitating transactions with unknown or non-vetted clients, especially those in emerging markets and developing economies. “This raises the potential for fines and reputational risk for these banks, and therefore reduces the appetite for exposure to specific jurisdictions by banks participating in this environment.”
He adds that it is likely that small and medium sized businesses would be the most affected by the reduction in global correspondent activity – if this was not replaced by more efficient and reliable regional systems. “If you do not have efficient and affordable cross-border remittance systems, people will rely on informal means of sending money across borders. In this process, dirty money will also utilise those channels, thus in effect defeating the intention of curbing the financing of terrorism and money-laundering.”
In southern Africa, the decline in correspondent banking could be directly attributed to the take-up of the SIRESS system, the SARB governor says. “SIRESS could in future have an even more significant impact on correspondent banking activity within the SADC region.”
Examples of other regional solutions implemented in the payment systems environment since the year 2000 include the West African Monetary Zone (WAMZ), and the East Africa Payment Systems (EAPS) of the East African Community (EAC).
“The EAPS is a secure, effective and efficient funds transfer system that enhances efficiency and safety of payments and settlements within the region. It also facilitates cross-border transactions that are essential for boosting intra-regional trade among East African countries. Some of the benefits of EAPS include real-time funds transfers, finality and irrevocability of payments, increased accessibility and same-day settlement. The initiative is indeed a success that is worth celebrating.”
Kganyago hopes the development of these and other regional cross-border payment systems would lay a solid foundation for facilitating trade and investment in Africa – and stressed that the systems needed to “talk” to each other so that capital can flow. “These regional initiatives are also paving the way for the achievement of the integration agenda of the whole continent.”