1. Competition Amendment Bill PASA Presentation by Pierre Coetzee 29 July 2008

2. Background The Payments Association of South Africa (PASA) is the payment system management body recognised by the SA Reserve Bank (SARB) in terms of the National Payment System Act, 1998. PASA is responsible to organise, manage and regulate its members with respect to payment instructions and their participation in the payment system. PASA also authorise PCH system operators, such as MasterCard, Visa, Bankserv and STRATE. PASA is also responsible to approve Payment Clearing Houses (PCHs) established by member banks. The establishment of a PCH is required in terms of the NPS Act and SARB policies when two or more clearing banks clear between each other. Participation in a PCH is done in terms of uniform rules, procedures and standards to ensure interoperability.

3. Complex Monopoly A PCH, requiring banks to co-operate with each other, may constitute a complex monopoly for the following reasons:  A PCH involves the clearing of payment instructions in respect of a certain product or payment stream, such as cheques, debit orders, credit cards, etc. No other “market” is available for the clearing of such products.  The establishment of a PCH will in all instances result in 100% of the services in that “market” being provided by the two or more banks participating in that PCH.  A PCH could almost in all instances be characterised by:  Restriction on supply;  Lack of innovation;  Exclusionary acts;  High entry barriers  Uniform pricing, similar trading conditions or other parallel conscious conduct; or other similar characteristics, This due to the uniform rules and agreements which banks are required to comply with and enter into, respectively. A complex monopoly will even be present in the “perfect competitive market” within PASA. The problem is that banks are compelled, on the one hand, to comply with the interoperability/co-operative requirements in terms of the NPS Act but at the same time prohibited by Clause 10A of the Competition Amendment Bill (CAB) to conduct their business affairs in a co-ordinated manner. Co-operation in a PCH will thus almost always prevent or lessen competition in that market.

4. Concurrent Jurisdiction Complex monopolies are governed by the CAB. Co-operation in the NPS, for efficiency and risk reasons, is governed by the NPS Act. The two opposing concepts are governed by two different regulators. Conflicting regulation of the payments industry through different regulators could result in legal uncertainty, systemic risk and other unintended consequences. Proposal In view of the fact that the SARB (and possibly PASA), is the expert regulator/s of the payment system, and is responsible to ensure a sound payment system through the implementation of risk mitigation measures, as well as interoperability and efficiency requirements, it is proposed that:  The “co-operative” side of payments should remain the responsibility of the SARB only.  Provision should be made in the CAB to allow for markets operating in a co-operative environment in terms of appropriate legislation. It could even exempt payment systems (including PASA and its PCHs) from the provisions of the Bill.  The CAB should clarify whether agreements as contemplated in Clause 3 of the CAB would also have to be negotiated with PASA, as self-regulatory body, and as recognised by the SARB.

5. PASA Co-operative environment Agreement and Rules Participation requires interoperability Competitive Environment Customer service Pricing Marketing and Sales PCH