BON PSD-9 Directive: The cross-border payment system’s anatomy and operations

Opinion Piece By Josef Kefas Sheehama

Even though it usually causes people to feel more nervous, it’s critical to keep in mind that compliance, security, and safety are important in a world of highly sophisticated financial crime.

The Bank of Namibia released PSD-9 in 2022, and the new regulation may have taken effect on April 15, 2024. The Bank of Namibia’s most recent directive has extended until September 2024 the date of implementation for cross-border payments under PSD-9. It specifies how electronic fund transfers (EFTs) transactions are to be carried out within the National Payment System, with the goals of ensuring their cost-effectiveness, efficiency, safety, and security. The regulations outlined in PSD-9 control both cross-border (regional and international) and domestic (debit and credit) electronic fund transfer activities. Furthermore, the purpose of PSD-9 is to control how banking institutions operating within the Common Monetary Area (CMA) process Electronic Fund Transfer (EFT) transactions, both domestically and internationally. PSD-9 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 accordance with the bank’s determination which is processing of EFT transactions in the National Payment System PSD-9.

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 recognized 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, despite the fact that they are economical and convenient for both individuals and corporations.

Hence, the result of the change will be that cross-border payments and collections will no longer be made through domestic services and the internal electronic funds transfer (EFT) channels provided by banks. All banks, customers, and companies that conduct cross-border payments and collections will be impacted by these changes, which are being made to improve the effectiveness and security of cross-border financial transactions. Therefore, 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, in order to fulfill the regulatory reporting requirements for Balance of Payments (BOP), the beneficiary will also need to provide additional disclosures about the payment’s purpose and beneficiary to their bank prior to the funds being released into their account. This is to meet national and regional modernization expectations while also adhering to regulatory requirements.

The 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 the domestic level, there exist infrastructure and governance structures that allow the private sector to better provide payment and financial services. At the international level, however, 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 deceive 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 delay 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. This may increase the cost for setting up the process, though the cross-border payment volumes may not justify the incurred compliance cost. 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.

Moreover, in order to meet the expectations of both national and regional modernization, the payment adjustments must comply with regulatory requirements. Indeed, the need for better cross-

border payments has long been recognized by the international community. Namibia will be able to get off from the grey list with the aid of PSD 9. This is principally for the benefit of Namibia, economy, financial systems, and also for the safety and security of the Namibia citizens. Policymakers, regulators, and law enforcement agencies must persuade the international community that Namibia is a country worth keeping in touch with while we work to strengthen our legal and compliance framework in order to maintain our competitiveness in the global stage. These changes should be safe and secure, and would facilitate economic growth, international trade, global development, and financial inclusion. The African Continental Free Trade Agreement (AfCFTA) will feature a major role for PSD-9 because of the continent’s expanding financial flows. Cross-border transactions are becoming more and more necessary, even though the majority of these amounts are the result of commercial transfers and have been accelerated by the implementation of sub-regional payment systems like the SADC-RTGS.

However, in order 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. Particularly in the current global trade and economic environment, CMA cross-border payment countries need to be adaptable and flexible.

To this end, even though these are all challenging problems, there is a chance for a solution where technological advancements are used to the advantage of CMA countries, which should encourage the creativity required to overcome the obstacles.

Therefore, to ensure that everyone understands CMA PSD-9 cross-border payments, Bank of Namibia should create educational materials in all of Namibia’s indigenous languages. If others are left out, the new regulation will not serve any purpose or accomplish its goals. These materials ought to be sent to the regional council offices by Bank of Namibia.