E-commerce is a digital marketplace with its own rules for procuring goods and services. Craig Duggan, Head of Commercial at Transaction Junction says the need to ensure confidence in the security and privacy of these transactions has resulted in legislation that tightly regulates and often restricts e-commerce and innovation. The convergence between the online and in-store world requires that the payment experience be seamless and consumer friendly. 

He says regulation is the biggest hurdle in an agile innovation environment. “The intention of e-commerce regulatory policies is to create a structure for transaction processing so that there is no chaos or confusion, while the protection of the consumer remains sacrosanct.” However, while the intention cannot be faulted, the theoretical application does not always support the practical application of e-commerce or consider the customer experience, making it difficult for the payments industry to innovate.

As a result, businesses are confined to operating within a box of limitations where banks are empowered to be the sole gatekeepers of the payment process. Duggan says the regulatory framework in this country creates a system of control for the banks, whereby digital payment systems are narrowed to enable them to squeeze through the gateway. This often negates the advantages they are seeking to provide. Measures are slowly being introduced to help speed up innovation in this space in South Africa, but the fact remains that a payments system - that was the envy of many all over the world - has stagnated and not been adequately positioned to adapt to the rapid changes taking place around us today.

“The way in which the local financial system is designed, enables banks to leverage regulations and technology, placing them in a position to determine under what circumstances new solutions or market entrants can participate in the National Payment System,” says Duggan. As a participant in the National Payment System, the regulatory framework insists that one needs a banking license or sponsor bank to operate, which often limits the ability to leverage more efficient processes.  

The current regulations are ineffectual for business models that must cater for the ever-changing needs of today’s demanding consumers, merchants, and tech-savvy market participants. Duggan considers PayPal, for example, was sublicensed by a major bank in South Africa – which then made it complicated and, in many ways, impractical when it was launched in South Africa. PayPal is designed exactly to what the customer needs: quick, seamless, and convenient. The reason for PayPal being unsuccessfully applied in South Africa to date is due to the inflexible stance of ‘what’s in it for me?’. Other examples are SnapScan and Zapper that find themselves constrained as market innovators and their only path to continued success is further bank involvement or even ownership. “Given so much control, you simply cannot operate without banks, and unless banks are open to exploring new, refreshing ways of doing business, the industry will continue to suffer,’’ says Duggan.

Primarily recognising financial or commercial regulation prohibitors will positively mobilise change. The question “how do we drive transparency?” comes into play. “Collaboration is key, it’s time to draw a line in the sand; stakeholders need to urgently identify what is relevant and required to collectively lower the barriers of entry into the e-commerce marketplace, he says. The integrity and stability of the payments system requires stakeholders to recognise the fine balance between regulation, control and innovation.”