by Lusungu Gondwe

Introduction

Payment systems have become a very important part of the financial services market recently.  They enable fund transfers to be effected from payer to payee by utilising advanced electronic methods, such as mobile payments, contactless transactions, and digital wallets. Transitioning to these systems achieves increased speed, convenience, improved data security, and accessibility thereby empowering businesses to meet customer expectations, drive sales, and stay competitive in any marketplace. This has created a huge investment opportunity in Malawi. Not surprising that legislature imposed stringent regulatory framework for governance of payment systems.

This brief note aims to inform investors regarding entry requirements into the payment systems marketplace

Governing law

The main legislation governing payment systems in Malawi is the Payment Systems Act. It regulates payment, clearing and settlement systems, payment instruments, remittance service providers, electronic money transfers, card issuers and travelers’ cheques agencies.  There are also several directives and subsidiary legislation dealing with specific aspects of the payment systems business.

Regulatory authority

The Reserve Bank of Malawi is the regulatory authority for payment systems. It aims to promote the soundness, safety and efficiency, integrity, and reliability of payment, clearing and settlement systems in Malawi. It takes all available measures to ensure all payment systems operators and participants play by the book.

Entry requirements

No investor can establish or operate a payment clearing and settlement system or service, remittance services including electronic money transfers, mobile payment services or issue payment instruments without licence or authorization by the Reserve Bank of Malawi.

To be licenced or authorized to establish a payment system, an investor must provide the following information to the Reserve Bank of Malawi:

A plan for the organization and operation of the payment system including the distribution of responsibilities and obligations between the system operator and the system participants;

The criteria established for direct and indirect participation in the payment system;

Measures to safeguard technical operations in the event of a payment system failure, including a contingency plan that lays down the disaster recovery arrangements in the event of any operational disruption should the payment system fail to function; and

Measures to mitigate risks in the payment system arising from illiquidity, insolvency or winding up of a system operator and systems participants.

In fact the Reserve bank of Malawi may prescribe in its unfettered discretion further or more detailed procedures for application for licensing or authorization in directives or guidelines.

Revocation of licence or authorization

Investors should take note the Reserve Bank of Malawi may, by notice in writing to a system operator, withdraw authorization or revoke or suspend a licence if it believes on reasonable grounds that the system operator has contravened any provision of the payment systems laws or is managing its payment systems in a manner that poses risks to the payment system, other payment systems operators, systems participants or to the general public.

Before such withdrawal or revocation, the investor shall be afforded the right to be heard.

Note that over and above the withdrawal and revocation, the Reserve Bank of Malawi has the liberty to impose other administrative sanctions as the case may be.

The investor may further wish to know that breaching payments systems laws in Malawi is a serious offence. The fine is MK 10 000 000-00 only. Further the violator can be imprisoned for  2 years.