South Africa Wants a Financial System Like the European Union 0 74

The South African Reserve Bank is planning a major overhaul of the monetary system. As part of the reform, a cash management company will be established, white-label ATMs will be introduced, and control over the movement of money will be strengthened.

The cash volume in Africa's largest economy currently exceeds 180 billion rand (about 10.7 billion dollars), which accounts for 2.5% of GDP, and still facilitates about two-thirds of all transactions, despite the rise of digital payments. Last year, approximately 90 billion rand was spent on servicing, transporting, and securing cash, with all these costs falling on consumers.

The Cash Smart Strategy aims to ensure that physical money remains accessible to low-income families and rural residents who may not always be able to utilize the digital payment system, yet spend five times more cash than urban residents with higher incomes. It is expected that these expenses will decrease due to the reform.

The central bank predicts that when the level of digitalization reaches EU standards, cash usage will decline by 30–40%.

"This is a very radical transformation of the industry," noted Pradeep Maharaj, head of the Payment System Modernization Program at the South African Reserve Bank.

A key element of the strategy will be the establishment of a cash management company, co-owned by banks and retail chains. It will operate on the model of the Dutch Geldmaat — a joint venture of ABN AMRO, ING, and Rabobank, which manages a unified network of ATMs.

The company will take over the planning and distribution of cash. As a result, the central bank will discontinue the services of private companies that currently earn about 480 million rand from cash storage and transportation.

ATMs, which are currently owned and managed mainly by Capitec Bank and FirstRand, will be incorporated into the new company and will become universal — clients of any bank will be able to use them with minimal or no fees. "There will be full compatibility, and we will be able to almost completely reduce fees," Maharaj noted.

Although the changes may impact the revenues of commercial banks, he added: "We hope this will even allow them to reduce their costs and offset potential losses."

"It will require effort, but the reform is worth it if we can make cash more accessible," says Jenny Rossouw, an honorary professor at the Wits Business School.

The reduction in the volume of cash in circulation will also lead to a decrease in bank revenues associated with ATM transactions. As customers withdraw cash less frequently, the number of transactions decreases, along with the fees and accompanying interest income that banks earn from managing cash flows.

The central bank intends to extend regulation of cash operations beyond the banking sector. Money transport companies, large retail chains, and individual payment service providers may come under the regulator's control. A licensing system is planned for them. The regulator expects to present the relevant regulatory framework at the beginning of next year.

The Reserve Bank plans to involve major retail chains, including Shoprite and Pick n Pay, in the reform. Through their checkouts and payment systems, up to 100 billion rand in cash passes through annually, which is then returned to financial circulation. The regulator is discussing the possibility of their participation in the capital of the new cash management company, as well as operating as licensed wholesale suppliers with direct access to cash — a step that could be beneficial for their business.

The plan has already been presented to banks, and consultations with industry experts will begin in January. Full implementation of the strategy may take up to three years.