Retailer opportunity: Sorting-at-Source
PASA (Payment Association of South Africa) together with certain banks, retailers and other stakeholders have made various submissions to the NPSD (National Payment System Department) of the Reserve Bank regarding sorting-at-source.
Sorting-at-source allows a retailer to forward customer bank-card payments directly to the bank who issued the card. To date, this practice has not been permitted as per a moratorium issued by the NPSD in December 2003.
This meant that a retailer was forced to send all his customer payment requests’ to a single acquirer. Multiple acquirers were allowed but all MasterCard payments had to be sent to a MasterCard acquirer, and all Visa payments had to be sent to a Visa acquirer (note the retailer could send both MasterCard and Visa to the same acquirer).
The downside of this to this retailer is that if the acquirer system was unavailable for any reason, then the retailer’s processing of all cards was compromised, with phone authorization required for over limit credit cards, and asking the customer to “pay in another way” if it was a debit card.
With the rapidly growing number of card transactions, especially debit cards, the retailer felt increasingly vulnerable to the single acquirer situation. The retailer therefore desired to be able to send the card payment requests directly to the issuer, and if the issuer system was down, then the retailer would be able to tell the customer that the customers’ bank was unavailable.
After considering all the arguments the NPSD has issued the following statement.
- In terms of the NPS Act clearing is the domain of the banks
- Sorting-at-source is not clearing
- There are no legislative grounds for the SARB to outlaw sorting-at-source other than if the practice should lead to systemic risk.
The NPSD requires the issuing bank to register the sort-at-source arrangement with PASA and provide various monthly reports to PASA around volumes and values. This will enable the NPSD to monitor any impact that sorting-at-source may have on the national payment system.
For retailers, this decision by the reserve bank opens up opportunities to talk to all banks about establishing a direct relationship with them. It also presents the opportunity to negotiate competitive merchant commission rates. The retailer will still need a single acquirer for all international transactions and potentially lower volume cards like Amex and Diners.
However all this won’t come free to the retailer. He will need to manage multiple relationships, settlement processes, communication links and reconciliation processes. A specialized EFT switching company such as eCentric Switch has the skills, products and services to assist the retailer in moving towards a sorting-at-source implementation.
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