The South African Reserve Bank said it is working on two-factor authentication, a digital financial identity, and an electronic know-your-customer registry to ensure safer digital payments in the future.
This is part of its digital payments roadmap, which aims to smooth out the path to a cashless society.
The Reserve Bank points out that cash is still king in South Africa.
This is because many people and businesses within lower and middle market segments (LSM1-7) rely heavily on physical currency.
Once the country has overcome hurdles such as access to consistent Internet connectivity and lower data costs, digital payments can begin replacing the country’s dependence on cash.
However, with the increased use of digital payments comes an increased risk of digital financial fraud.
To counter this, the Reserve Bank plans to implement different means of deterring fraud and increasing security.
Digital identity
The Reserve Bank defines a digital identity as a unique identification of a person or entity based on electronically stored attributes.
It said this could increase access to digital payments, financial inclusion, remote onboarding, and the reduction of manual errors.
It also allows the identity to be used across multiple sectors and, therefore, relies on numerous stakeholders for its development and implementation.
Once a digital identity has been created, “it facilitates the consumption of digitised payment services” and lowers compliance costs for payment service providers.
The SARB plans to trial this by facilitating a public-private sector collaboration over two years.
Multi-factor authentication for digital payments
The Reserve Bank is considering using a two-factor authentication system, similar to the Netherlands, to maintain the security of digital payments.
This type of authentication requires something you know (e.g., PIN), something you have (e.g., cryptographic identification device), or something you are (e.g., biometrics).
Low-risk small transactions, such as those below R500, will not require this type of authentication.
The roadmap plans to mandate multi-factor authentication for digital payments within a year.
Itargues that its introduction will increase trust in and, therefore, adoption of digital payments.
The Reserve Bank’s security action plan
Below is the Reserve Bank’s plan and timeline to begin implementing these changes over the next two years.
E-KYC refers to an electronic know-your-consumer (E-KYC) registry that needs to be created to identify and verify parties at onboarding.
This will help improve the standardisation of information requests and improve customer convenience.
Payment service providers must also consider cybersecurity and cyber-resilience measures to protect against digital fraud.
The Reserve Bank (SARB) will develop these in tandem with the payment industry, and the Financial Sector Conduct Authority (FSCA) will then facilitate their implementation.