Anatomy of the Cross-Border Payment System

Compliance, security and safety are important in a world of highly sophisticated financial crimes.

The Bank of Namibia (BoN) released PSD-9 in 2022.

This is a determination on the conduct of electronic fund transfer (EFT) transactions in the national payment system.

The new regulation would have taken effect on 15 April, but this has been extended to September.

It specifies how EFTs are to be carried out within the national payment system, with the goal of ensuring their cost-effectiveness, efficiency, safety and security.

The regulations outlined in PSD-9 control both cross-border and domestic EFT activities.

Furthermore, the purpose of PSD-9 is to control how banking institutions operating within the common monetary area (CMA) process EFT transactions.

It mandates that EFT transfers from Namibia to other nations be handled and reported as cross-border transactions, and forbids the processing of Namibian EFT transactions as domestic transactions in other jurisdictions.

Therefore, these payments shall be treated as international transactions.

In addition to addressing issues with transaction visibility and transparency, PSD-9 aims to address issues with cross-border low-value Namibian EFT transaction classification and reporting, particularly with regard to transactions occurring within the CMA.

Domestic EFT transactions in South Africa are currently recognised as EFT low-value transactions within the CMA.

The way the banking institutions in the CMA are handling and processing these transactions raises regulatory concerns.

Therefore cross-border payments and collections will no longer be made through domestic services and the EFT channels provided by banks.
All banks, customers and companies that conduct cross-border payments and collections will be impacted by these changes.

Therefore, the Global Payment Society for Worldwide Interbank Financial Telecommunications (Swift) must be used to initiate all cross-border payments to a person or business in the CMA.

As a result, businesses and individuals should anticipate longer payment turnaround times.

This is because beneficiaries would also need to provide additional information about the payment’s purpose and themselves to their bank prior to the funds being released into their account.

Cross-border payments can be costly, time-consuming and risky.

Due to Swift rails’ usage in the SADC-RTGS system, there may be some delays.

At domestic level, some infrastructure and governance structures allow the private sector to better provide payment and financial services.
At international level, however, a lack of coordination creates insufficient provision of and results in inefficient arrangements for cross-border transactions.

The absence of a common settlement, as well as common rules and governance, causes counterparties in different jurisdictions to rely on expensive trusted relationships in today’s payments world.

Even with all the effort and safety measures, security is still Swift’s top concern.

Fraudsters continue to employ extremely sophisticated techniques to scan banks and individuals out of their money.

Cross-border payments take a considerable amount of time due to various checks and controls, as well as multiple layers.

The most common reasons for delays are incomplete remittance information and anti-money laundering and fraud checks.
Institutions have different processes to mitigate risks.

Also, cross-border payments are subject to the regulatory requirements of the origin country, the destination country and any other jurisdictions they pass through on the way. Each country has its systems and regulatory authorities to protect consumers and their personal data and avoid fraud and illegal activities.

Besides, banks have specific and high-level regulatory and compliance requirements for AML and KYC.

SECURITY ALWAYS A CHALLENGE

Thus, maintaining the network’s security is a continuous challenge for Swift.

In spite of everything, Swift continues to be the top supplier of secure financial messaging services globally.

The need for better cross-border payments has long been recognised by the international community.

Namibia will be able to get off the greylist with the aid of PSD-9.

These changes should be safe and secure, and would facilitate economic growth, international trade, global development and financial inclusion.

The African Continental Free Trade Area agreement will play a major role in PSD-9, because of the continent’s expanding financial flows.

Cross-border transactions are becoming more and more necessary.

However, for a new regulation to be effective in the CMA countries, it must take into consideration global credibility, as well as the capacity to make things simple, transparent, and affordable.

To ensure everyone understands CMA PSD-9 cross-border payments, the BoN should create educational materials in all of Namibia’s indigenous languages.