Regional trade, investment and remittances – all critical components of economic development in Southern Africa – require cross-border payments to be made quickly and cost-effectively.
Sending money across borders in the Southern African Development Community (SADC) can be expensive and take time. SADC attempted to address this in 2013 by setting up an electronic cross-border payment system called SIRESS.
While a number of banks had been onboarded to the system three years after its pilot, use remained thin and it was unclear whether the system was achieving the cost and efficiency gains it promised.
Genesis partnered with the FinMark Trust to verify what impact SIRESS was having on the cost and efficiency of cross-border payments, and to understand why banks were not making greater use of the system. To fill these information gaps we interviewed the central banks and a range of commercial banks in South Africa, Zimbabwe, Zambia and Mauritius covering a cross-section of bank sizes and affiliations.
This segmentation ensured that the range of correspondent relationships that existed before SIRESS were compared, as were the costs and turn-around times of different banks depending on their regional linkages.
We found that SIRESS was not achieving significant cost advantages relative to correspondent banking and only provided an efficiency advantage in some cases. As such, a number of participating banks did not see a genuine commercial business case for using the system.
Our analysis highlighted that these problems stemmed partly from the system’s design, where settlement is conducted in rands while most intra-SADC payments are conducted in USD. We identified that in order for SIRESS to create value in the region it would need to first make cost and efficiency gains tangible to participating banks, extend these gains to the rest of the region by introducing USD settlement, and then evidence the business case for commercial banks to participate to gain bank buy-in.
We presented our results and recommendations to the payments system sub-committee of the SADC Committee of Central Bank Governors where the recommendations were accepted and tabled for action. On the committee’s request, we then provided further assistance by conducting a market-sizing exercise to estimate the transactions that could be conducted through SIRESS should USD be introduced as a settlement currency, and by building a business case evidencing the gains for a commercial bank to make use of SIRESS.
We helped the sub-committee identify how to maximise SIRESS’s value to the region and how to articulate this value to commercial banks.