Abstract
The purpose of this study is to determine the impact of interchange determination by
the South African Reserve Bank (SARB) on the South African payment industry. The
SARB has facilitated the determination of interchange rates for ATM and card
transactions since 2013, through the interchange-determination project. This was in
response to the findings of the commission on the level of charges made by banks
and other providers of payment services to consumers, as well as the access to the
NPS by non-banks and small banks. However, since the inception of the interchangedetermination
project, there has been no study conducted on the impact of
interchange determination on the South African payment industry.
The main question of this research is: What is the impact of interchange
determination/regulation (setting of the interchange level by the South African
Reserve Bank) on the payment industry in South Africa?
The main research question is further broken down into the following sub-questions:
a. What has been the impact of interchange determination on consumers’
preferred payment methods?
o Has the regulation of interchange fee led to an increase or decrease in the
usage of cards and ATMs transactions?
o Has the regulation of interchange fee led to an increase on transaction
accounts fees?
b. What has been the impact of interchange determination on merchants’
preferred method of payment?
o has interchange determination resulted in an increased in the use of cash and
other payments instruments at the expense of cards?
c. What has been the impact of interchange determination on issuers? Specifically,
has interchange determination resulted in revenue losses for issuers of cards
instruments?
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From the literature reviewed, the findings regarding the impact of interchange
regulation/determination for the payment industry are quite varied. Though the
findings for the studies conducted are interesting and suggestive, they are neither
conclusive nor generalisable. As a preliminary matter, neither analysis sufficiently
controls for general trends in payment instruments in a way that allows for a causal
link between interchange fees and card usage.
Our results show no strong indications that the interchange regulation has had a
material impact on the payment industry. For the issuers, the transaction related
income before and after interchange determination has remained relatively stable
trending between 30% and 40% before and after interchange determination.
Regarding merchants, we have witnessed a highly significant growth in Point of Sales
(POS) devices by merchants, before and after interchange determination. The same
can also be said with consumers whereby we have witnessed a surge in ATM and
cards transactions before and after interchange determination. The absence of
noticeable inflexion points in the data following the implementation of the interchange
determination project may reflect the rapidly changing landscape in the payments
space which has been characterised by various new innovations over the past
decade.
Based on our findings a set of key recommendations was proposed. These include
maintaining of open dialogue between regulators and payment industry players for
more transparency in the industry; and that issuers should come up with solutions to
develop an efficient, effective, and secure payments system and should seek
balanced ways to share the overall costs and benefits.