Mapping out path for local card-processing in SA
South African card switch strategy
Market analysis and positioning
Area of Expertise:
South Africa is unusual in having a domestic payment switch that can process domestic card transactions in addition to the global processing schemes (Visa and MasterCard). This brings a number of unique benefits: South Africa’s payments system maintains an element of sovereignty, protected from political fluctuations elsewhere, and the global processing schemes’ prices can be benchmarked against a local processor.
However, South Africa’s domestic payment switch, BankservAfrica (Bankserv), is under increasing pressure from the global processing schemes. With the rise in digital payment innovations, banks typically move large portions of their card-processing to Visa or MasterCard to access these digital innovations.
Genesis partnered Bankserv to address this competitive pressure and determine how to continue providing card-switching services to the South African market. We worked closely with Bankserv and an international payments consultancy to extensively scope the domestic payments landscape, in particularly estimating the probability of cash and EFT being substituted for card payments in the future.
We then helped Bankserv understand its vulnerability to losses in card volumes by conducting a scenario analysis and a volume-based cost reallocation. This provided Bankserv with the minimum processing volume it would need for the business to remain sustainable and highlighted how changes to the card business would impact the cost of processing all other products.
Given the findings from the analysis, Genesis developed a number of strategic options for Bankserv to consider. The options included maintaining the current business model, with a few enhancements; pursuing a strategy to facilitate innovation across the network; or exiting and selling the card-processing business. The options were not mutually exclusive and each option was assessed against a number of criteria to understand which could be practically implemented.
The analysis and recommendations were presented to the executive committee. It resulted in Bankserv beginning a consultative process with its shareholders to understand how best to shape its card business to meet the needs of the South African market and maintain the benefits of domestic card-processing.
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