Commission opens mobile payment industry door

The Competition Commission`s recommendation to open up access to the National Payment System (NPS) is seen as the catalyst the mobile payment industry needs to bring online transactions to the majority of the population.

Yesterday, the Competition Commission released the report by the Banking Enquiry Panel, chaired by judge Thabani Jali, which has been sitting for the past 22 months. The panel has made 28 recommendations to increase competition in the banking sector to bring down costs, of which nine relate specifically to the NPS and five relate directly to the automatic teller machine (ATM) network.

The NPS is the settlement infrastructure that is considered a closed system as it is biased in favour of the commercial banks and makes it difficult for competitors to enter. The panel recommends legislative changes to the NPS Act to open it up to competitors.

Corrie Froelich, head of international research firm Frost & Sullivan`s African ICT practice, says companies with switching capabilities have for too long waited to get access to the NPS.

"Currently, the initiatives in mobile payment (for example MTN Banking) require providers to partner with banks. However, the banks obviously don`t want to cannibalise their existing income streams, so this has not been that effective. Hopefully, the legislative environment will be addressed as fast as possible, to reduce the amount of red tape and allow cellular and other third parties to enter the NPS," he says.

Frost & Sullivan expects mobile operators to take advantage of this, as they have already shown the ability to develop relationships with partners in many areas of business, such as roaming and dealing with international clearing-houses.

Froelich says the proposed legislative change would lower specific banking costs and, therefore, broaden access to retail banking. The full impact of opening the NPS is still to be seen, but this could be an opportunity for entrants to bring new services into the retail market. Retailers have also been waiting to be able pass on the cost savings made on banking fees to their price-conscious customers.

Frost & Sullivan also believes it`s commendable that the ATM carriage fee will become more transparent, to both users and providers. "A more open ATM network should be the key measure and we certainly hope this will only be the first step in establishing a more independent ATM network. This will make it more affordable to lower income users."

Leon Perlman, chairman of the Wireless Application Service Providers Association, says the findings to open up the market are consonant with similar initiatives in many developing countries to provide ubiquitous and affordable banking and payment services using cellphones.

"South African wireless application service providers and the mobile operators have been successfully providing similar micro-payment services via SMS for primarily digital entertainment goods for more than six years. Thus they are ideally poised to be the enablers of new and affordable cash-replacement payment services, especially since the cost of creating and maintaining accounts using a mobile wallet can be considerably lower than it is currently in traditional bank accounts," he says.

Perlman says, as in Kenya and the Philippines, however, rapid deployment of any new services suggested in the report requires the genesis of a fundamentally new enabling prudential and regulatory framework that would allow non-banks to enter the banking and payment arena.

"Appropriate licensing and open access to our National Payment System by non-banks would be a critical enabler since interoperability is key to the success of any new initiatives," he says.

Elsabe Donovan, MD of payment gateway firm Swop Mobile, says opening access for non-banks to the NPS and developing an appropriate regulatory scheme will increase competition in the provision of banking services.

"The current system makes it difficult for potentially innovative competitors to enter the market," she says. "Our own research in this market tells us very clearly that consumers want - and need - alternatives to those permitted under the existing national payment system. Of course, while convenience and choice are huge factors, one of the bigger drivers of consumer desire for change is the matter of costs. Here, the mobile platforms are key because they offer an opportunity to deliver without imposition of excessive fee structures."

Donovan says she applauds the pressure the Competition Commission has placed on competition, proper regulation, ensuring applicants are suitably qualified to enter the market, and the proposed establishment of a payment system ombudsman.