Instant payments prompt review of interchange fees

Genesis Analytics was commissioned by a leading payment processor to write a concept paper that presented the consensus of the payments industry around the role and pricing of card payments in light of the introduction of emerging payment types such as instant payments. This primarily involved a consideration of the motivation and implication of having different interchange rates for competing payment rails within the P2P and P2M markets.

To begin unpacking these issues, Genesis examined the current interchange regime in South Africa — including a look at how these rates are set, how these rates vary across different payment streams, the direction in which interchange flows, as well as its rationale.

Then, to permit an understanding of how emerging payment types such as instant payments might influence the South African payments market, we evaluated the uptake of instant payments in five comparator markets.

Through this exercise, we were able to identify several indicators that serve as predictors around the uptake of new payment systems and their capacity to cannibalise incumbents. In addition, we considered the extent to which the interchange regime adopted in these markets could explain their relative success or lack thereof.

Finally, Genesis canvassed key stakeholders across the payments industry — including representatives from banks, payments service providers and industry bodies. The aim was to gain consensus around the interchange regime in South Africa and whether there should be alignment of interchange across the real-time use case on all rails.

Through these three phases of analysis, Genesis was able to provide our client with recommendations on what position they should take regarding interchange fees and how best to insulate themselves from competition from emerging payment types.