Global payments technology company, Visa, has stepped up plans to introduce the National Net Settlement Service (NNSS) after the Reserve Bank of Zimbabwe (RBZ) directed all banks to ensure that international card switches facilitate local settlement for transactions.
BY TATIRA ZWINOIRA
The NNSS is a processing transaction network which will enable Visa card holders to transact using local finances.
In his 2017 monetary policy statement, the central bank governor John Mangudya instructed banks to ensure that international card switches (international debit cards) facilitate local transactions because nostro accounts are strained.
Mangudya told Standardbusiness last week that RBZ had been engaged by both Visa and MasterCard since late last year on ways to have these cards domesticated to avoid stressing the nostro accounts.
“Visa and MasterCard were here and it is them who advised us that you have got a leakage there [in the usage of these cards] because Visa and MasterCard usage were increasing the value of transactions,” he said.
“Right now, they [Visa and MasterCard] are being constrained by the amount of money in the nostro accounts. In other words, we are now saying foreign cards for foreign payments. I see a future for Visa and MasterCard in international transactions.”
He said a student in the United States or Europe could use his or her Visa card which would draw on the nostro accounts because we “will no longer be double dipping by using them locally”.
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He said RBZ was not stopping the use of Visa or MasterCard but was merely saying there needed to be separate platforms for local and foreign transactions to avoid double dipping of nostro accounts.
The central bank found international card switches gobbled 8% or $206,66 million of the $2,5 billion of foreign exchange transacted in the second half of 2016.
Last month, Visa announced that they would be introducing the NNSS to allow client banks to domesticate United States dollar denominated Visa transactions.
The NNSS is built on Visa’s transaction processing network, VisaNet, a local settlement solution customised to process, clear, report, and settle domestic transactions specific to the unique set of needs and requirements of a country.
Sources say Visa’s and MasterCard’s interest in domesticating international debit cards has to do with them not being able to charge on transactions that are not domesticated. Visa and MasterCard make their profit by facilitating a transaction between the cardholder and the intended merchant bank.
Usually, Visa and MasterCard have two separate systems in place for local and foreign transactions. For local transactions, they use a prepaid mechanism and leave the nostro accounts to back foreign ones.
In his 2017 monetary policy statement, Mangudya said the Visa local settlement would go live by the end of the month, while MasterCard local settlement would be enabled by the end of the quarter.
The NNSS received a major boost last week after the country’s biggest bank by deposits — CBZ Bank — said it was ready to participate in the local Visa settlement platform once it was implemented.
In emailed responses to Standardbusiness, CBZ Bank — said it was hoping to limit “unnecessary pressures on nostro accounts” by suspending the usage of Visa and MasterCard for local transactions.
Nostro accounts are those accounts held by local banks in foreign financial institutions where they keep foreign currency reserves.
As Visa or MasterCard facilitate electronic fund transfers throughout the world, these international debit card firms draw from nostro accounts in order to facilitate the speedy payment process between a cardholder and the intended merchant bank.
As such, banks have since taken action to try and curb the usage of Visa and MasterCard.
Last month, CBZ Bank suspended the use of Visa cards locally.
“The bank took measures such as suspension of use of Visa cards for local transactions in order to limit unnecessary pressures on the nostro positions. What is important is to note that the bank has provided a number of ways and means to facilitate local transactions, including the local debit card, CBZ Touch and internet banking,” CBZ Bank said.
“Further interventions on the international cards transactions will be guided by our customer requirements, market developments and the direction from the regulatory authorities.”
Other banks that have taken action to limit the usage of either Visa or MasterCard include FBC Bank, Standard Chartered Bank, Stanbic Bank and BancABC.
Analysts say the use of Visa cards for local transactions had been worsened by the fact that Zimbabwe was using foreign currency as a transacting currency. This means that nostro accounts were backing deposits.
Statistics from RBZ showed that in the second half of 2016, the banking sector had 3 127 153 active debit cards, 16 030 credit cards and 43 288 prepaid cards.
