SIRESS: A Case In Point The first stage of the Sadc Integrated Regional Electronic Settlement System (SIRESS), being the first go-live involving countries in the Common Monetary Area (CMA) namely Lesotho, Namibia, South Africa and Swaziland, was initiated in July 2013. Phase Two involved Malawi, Tanzania and Zimbabwe going live in April 2014 followed by Mauritius and Zambia which went live in September 2014 under Phase Three. Since the launch of Siress, 43% of payments in the Sadc region are now executed through the system, which settles payments in South African rand. By April 2015 Siress had reached the ZAR1 trillion (US$85,1 billion) settlement mark. This phenomenal growth of Siress is emblematic of the growing importance and influence of regional payment systems in general, the rationale of which is the subject of this article.
Financial Sector Spotlight with Omen Muza Growing Intra-African Trade Africa’s regional payment systems, such as Siress, are expected to play a growing role in the continent’s economic growth story, particularly as intra-African trade picks up. These payment systems are set to be both beneficiaries and drivers of Africa’s economic growth. Underlying growth in trade volumes will create demand for more advanced cross-border facilities and services. “Without a functioning payment system, the vision of increased intra-regional trade will not materialise. It’s a fundamental prerequisite,” Hugo Smit, head of sub-Saharan Africa for Swift says.
Maturity of Financial Services Architecture Across the continent, new systems such as the East African Payments System (EAPS) catering for members of the East African Community (EAC) and Comesa’s Regional Payment and Settlement System (REPSS) which are being successfully deployed, are clear testimony of increasing maturity of Africa’s financial services architecture.
Regional Integration Agenda The push to both deploy and enhance regional payments architecture is partly the product of a drive to boost regional integration. According to Patrick Gutmann, group head of transaction services at Ecobank, these days a lot of emphasis is placed on greater regional coordination and co-operation, both from commercial and political perspectives. The recently launched Tripartite Free Trade Area (TFTA) which seeks to integrate Sadc, Comesa and EAC into a single trading block will, for instance, require supporting payment and settlement systems which could eventually see the integration of Siress, REPSS and EAPS into a single payment system.
Following the Money More and more companies are broadening their commercial space beyond a single country configuration, and are starting to look for regional or pan-African banking solutions, according to Patrick Gutmann, a situation that plays straight into the hands of and enhances the utility of regional payment systems.
Evolving Correspondent Banking Model Experts contend that the traditional model of correspondent banking, whereby regional transactions have typically been cleared in dollars by US-based institutions, has always imposed significant costs on trade and business development initiatives, and by default, on the end consumer as well. Admittedly, correspondent banking relationships still dominate the continent’s payments space, but they are coming under increasing pressure as a result of the Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. For large international lenders, the expense of dealing with unknown counter parties is mounting. A perfect and topical illustration of this phenomenon is the case of Standard Chartered Bank Zimbabwe, which recently said it would cease to process United States dollar cross-border payments, including but not limited to outward telegraphic transfers, letters of credit and cheque transactions for selected clients with effect from August 31 2015.
“A small number of Standard Chartered Zimbabwe Customers may from September experience difficulties in making US dollar cross-border payments as a result of restrictions imposed by our US Correspondent, Standard Chartered Bank’s New York branch, with whom we will work to minimise customer impact. These restrictions are not intended to be permanent but will continue until we have improved our client due diligence and AML processes in Standard Chartered Bank to meet global standards,” said the bank.
Smit contends that the advent of Siress, for instance, means that an alternative model to correspondent banking is now available, the benefits of which include greater cost efficiency in terms of pure exchange rate risk as well as the cost associated with correspondent banking.
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“Global regulations are having a significant impact on transaction patterns. As a result, larger international institutions are reviewing their correspondent banking relationships and de-risking. This, together with the costs to meet international regulatory requirements, may ultimately result in smaller domestic banks in Africa being excluded from international banking relationships,” says Smit.
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