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TMCNet:  Concern at Bankserv's 'Aggressive Expansion'

[July 09, 2010]

Concern at Bankserv's 'Aggressive Expansion'

Johannesburg, Jul 09, 2010 (Business Day/All Africa Global Media via COMTEX) -- THE aggressive new expansion strategy of BankservAfrica - the organisation established by SA's big four banks to handle almost all credit card, debit card, ATM and internet transactions - is causing anxiety among senior banking and IT figures.

They fear the organisation at the heart of the national payments system may encroach on the territory of its clients, the banks.

It is understood there is a discreet Reserve Bank investigation taking place about Bankserv- Africa's expansion, since the organisation was originally established as a service organisation to the banking industry and not intended to become an independent operator in its own right.

However, the organisation has developed a strong momentum of its own, backed by strong cash flow and a central position in the national payments system. It has recently acquired a number of companies that could help it establish itself further downstream than intended.

BankservAfrica denied it would go into competition with its own clients, but made no apology for adopting an expansionary stance, arguing that it was critical that the organisation remained internationally competitive.

Although not well known, BankservAfrica is a cornerstone of banking in SA.

It was set up as a neutral interface between banks - a centralised processing centre that transmits or "switches" almost all credit card, ATM and internet transactions from one bank's network to another.

The company processes about 2,5-billion transactions valued at R8-trillion every year.

It was set up as a nonprofit organisation, but in 2000, stakeholders moved away from a break-even model to a self-funding business model.

Senior bankers are now concerned that the organisation is so critical and powerful that it will be impossible to stop it edging closer to the operational area which was previously the domain of financial services companies.

The organisation has indicated that it intends expanding, but its head of marketing, Michael Rubenstein, said yesterday: "There is no intention whatsoever to compete with our clients.

"We will assist our clients in processing any payment transactions in the most efficient manner possible," he said.

However, critics say Bankserv Africa already competes with potential clients, after acquiring Nomad, a company that does retail processing.

Mr Rubenstein said the purpose of the Nomad acquisition was to "extend our understanding and focus to the important retail industry, from where a large number of our transactions are originated. Innovation in technology necessitates us to understand the full payment value chain and determine where we can add value to the full value chain." When asked about the possibility of an investigation by the Reserve Bank, Mr Rubenstein said: "We are co-operating fully with all these regulatory bodies and are confident that we can address any concerns which may arise from time to time." Critics of the new approach, who asked to remain anonymous for fear of being discriminated against by the organisation that dominates the industry, said that BankservAfrica intended operating both as a back-end utility and also as a front-end transaction originator.

They said it had publicly stated it intended offering "an integrated service to merchants and their banking counterparts".

Mr Rubenstein said in response: "We certainly aim to serve the financial industry in any part of the payment value chain. We, however, are a technology partner and do not 'originate' or 'sponsor' any transactions into the national payment system." He said that was the domain of banks or entities authorised by the Reserve Bank and the Payments Association of SA.

Bankserv is still owned by SA's big four banks, with a consortium of other banks holding a small stake. But there was speculation that a foreign player was interested in buying Bankserv about two years ago, but nothing came of those discussions.

Bankserv was also involved in the Competition Commission's investigation into bank charges and Mr Rubenstein said the organisation "fully co-operated" with that probe.

Bankserv said it was an extremely efficient operator in international terms.

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