Crypto companies are voicing their concerns and offering possible alternative solutions. From Moneyweb.
Minister of Home Affairs Leon Schreiber came out swinging this week over criticism of his plan to raise ID verification fees from 15c to about R10.
That criticism was from TymeBank co-founder Coen Jonker who says the 6 500% increase in fees proposed by the Department of Home Affairs (DHA) should be reversed as it will make it commercially unviable to serve low-income South Africans, such as social grant recipients and informal workers.
Here was Schreiber’s response on X: “The CEO of a unicorn worth R26.7 billion demands that taxpayers struggling to afford food must subsidise it, as it refuses to pay more than 15 cents for a service that costs vastly more to provide and that contributes to ‘system offline’ at Home Affairs offices? Thoughts?”
Listen/read
Leon Schreiber on the reasoning behind new ID check costs
TymeBank calls for Home Affairs to halt 6 500% fee hike
An increase from 15c to R10 for what is essentially a ‘call’ between two computers may seem like small change in the grander scheme of things, but this quickly adds up when you are on-boarding thousands of new customers a month.
Crypto companies not pleased
Like Jonker, crypto companies trying to usher in a new frontier in financial accessibility don’t like the fee increases either as it comes on top of additional compliances costs arising from the new ‘Travel Rule’ imposed by the Financial Intelligence Centre in April.
This requires crypto asset service providers (Casps) to collect and share client information when facilitating crypto transfers above R5 000. For many companies, this requires expensive software that increases overheads by several hundred thousand rands a year.
Schreiber told Moneyweb’s Jeremy Maggs on Thursday that half of the existing system of verification failed in more than 50% of cases, primarily because of online services by the State Information Technology Agency (Sita) and the National Population Register (NPR) – the database that is accessed when customers use Home Affairs services, justice and social welfare.
Implications for the crypto industry
The real-time verification service was introduced in 2013 at a cost of 15c – an “absurdly low” price that robbed the department of the resources it needed for maintenance and upgrades. The cost of providing this type of service in the private sector is R20, not 15c, said Schreiber.
Schreiber rejects claims the system excludes vulnerable users, yet crypto service providers see it differently.
Says Farzam Ehsani, CEO of VALR: “While I don’t have insight into the DHA’s internal costs, an increase from R0.15 to R10 is obviously very large and will certainly have implications for the crypto industry and beyond since Casps are accountable institutions and need to comply with Know-Your-Customer (KYC) regulations. This fee change will result in a large increase in costs for many Casps which will ultimately have to be passed on to customers in some shape or form.
“An adverse result of a change in fee like this is that it makes it much more difficult for new entrants to innovate and serve the public while ensuring that compliance is commercially feasible for them.”
Read: Is Know Your Customer verification really that safe?
Shiven Moodley, macro strategist at 80eight, says what appears to be an insignificant fee increase is actually a massive knock to new players innovating financial inclusion in SA.
“A fee increase like this would continue to exclude the communities that need financial inclusion support,” he says.
“But it also opens up a significant play for providers who are just DeFi [decentralised finance] only. The issue is DeFi education around non-custodial wallet and off-ramps like cards or tap-to-pay wallets lag adoption in South Africa. But should that grow in the next few years, regulation would have to evolve.”
Fee increase ‘not insubstantial’
Connie Bloem, CEO of blockchain-based trading platform Mesh Trade, agrees that the increased fees are not insubstantial and will hurt the government’s objective of financial inclusion.
Christo de Wit , SA country manager at Luno, says it has engaged with the DHA on this matter to express its concerns over the fee increase.
“We agree that the DHA’s online verification system (OVS) has experienced disruptions in the past and is in need of an upgrade, [but] the proposed increase appears quite disproportionate to us. Such an increase will inevitably raise our operational costs.
“The DHA has responded to us that they view the R10 per verification as a fair fee, taking into account the necessary investment in infrastructure, systems, and operations for providing a reliable OVS. We remain open to further engagement with the Minister of Home Affairs on this critical issue to find a solution that is both commercially viable for the broader financial industry and constructive in supporting their efforts to incorporate and maintain a sound identity verification system.”
Yet another layer of cost
The crypto industry, like much of the financial sector, is already grappling with rising compliance costs, particularly in relation to the Travel Rule implementation and other onboarding requirements, says Frank Leonette of crypto exchange AfriDax.
Listen/read: Regulatory overload could stifle the crypto boom
“The proposed increase in ID verification fees by the DHA adds yet another layer of cost at the very first step of engaging a potential customer, often without any guarantee of conversion or transactional activity.
“This change does not just impact banks, it affects all regulated platforms that rely on ID verification, including crypto exchanges, fintech start-ups, and other digital services,” says Leonette.
“These added costs could harm financial inclusion, innovation, and onboarding, especially for smaller players.”
Rather than discouraging compliance through unaffordable costs, government should be working collaboratively with industry to lower the burden.
Leonette says a possible solution would be to provide a reusable or share service for KYC – as well as KYC and Know-Your-Business (KYB) service providers.
“The solution could be a more interoperable, consent-driven approach to identity verification, where once a customer is verified, that information can be securely reused across multiple platforms.”
Jonathan Elcock, CEO at Rather.chat, says TymeBank’s concerns are real and it is trying to keep the costs of acquiring customers low, without profiteering.
“These customers can’t afford to pay the banking fees that middle market customers pay [to traditional banks] so it’s harder for TymeBank to recover acquisition costs. At the lower end of the market there is a constant battle to ensure every client is profitable (otherwise you scale your losses on every new customer and go out of business).”
Low cost solutions are available
Home Affairs should be transparent about the exact cost of running the ID verification service, including the costs of upgrading, and what it believes is a fair contribution from service users.
“Transparency is key, else it feels the price change is just robbing Peter to pay Paul,” says Elcock.
The DHA should invite captains of industry – the users of the service – to allocate top tech and business resources to help reduce the cost and improve uptime by optimising infrastructure and business processes.
“It’s hard to imagine Home Affairs services are running at peak efficiency, and business can meaningfully contribute to this objective. It’s their day job after all,” says Elcock.
Moodley says blockchain and encryption provide low-cost solutions to the problem the DHA is trying to solve, such as zero knowledge (ZK) proof technology, where one party can verify another without revealing potentially sensitive information such as citizenship and age.
The one-time verification could create a ZK-based verifiable credential that would allow KYC verifiers to use credentials without recalling the Home Affairs Application Programming Interface, which is a set of rules that allows different software applications to communicate and interact with each other.
