When the Association of Communications and Technology (ACT) filed for a High Court review of the Department of Home Affairs' new identity verification fee, it wasn't just another corporate grievance. It was a line drawn in the sand over the future of digital identity in South Africa — and the millions of citizens who depend on it.

At the heart of the dispute is a regulation that increased the cost of verifying a South African's identity against the National Population Register from 15 cents to R10 per real-time check — a staggering 6,500% increase that took effect on 1 July 2025. For the telecommunications industry, banking sector, and the broader digital identity ecosystem, this isn't a minor budget adjustment. It's a structural blow to the way South Africa verifies, protects, and includes its citizens.

The Cost of Getting Identity Wrong

Let's be clear: nobody disputes that the Department of Home Affairs needed to modernise its systems. The Online Verification System (OVS) had become notoriously unreliable, with failure rates exceeding 50% at times. Minister Leon Schreiber is right that the 15-cent fee, unchanged for over a decade, was unsustainably low. Investment was overdue.

But the solution — a 6,500% fee hike imposed with minimal meaningful consultation — is a cure worse than the disease. The ACT's legal challenge isn't about whether the system should be upgraded. It's about whether the private sector and, ultimately, South African consumers should bear a disproportionate cost for that upgrade, implemented through a process that sidestepped constitutional principles of consultation.

The procedural concerns are not trivial. As WhoYou reported in July 2025, the initial Draft 14th Amendment to the Identification Act was gazetted with just six working days before implementation — an impossibly tight window for an industry that processes millions of verifications monthly. Public comments were invited, submitted by numerous industry bodies, and then, by all appearances, disregarded. The final regulation mirrored the draft almost exactly.

This approach echoes a recent High Court ruling against the national energy regulator, which found that implementing major tariff hikes without transparent public participation was unconstitutional. The precedent is there — and it may well apply here.

Financial Inclusion Under Threat

The real-world impact of the fee hike is already being felt across the financial services and telecommunications landscape. TymeBank CEO Coenraad Jonker has labelled it a "crippling blow to financial inclusion" and a "regressive tax on the most vulnerable." His bank estimated that onboarding one million Social Relief of Distress clients would now cost R20 million in DHA verification fees alone.

These aren't abstract numbers. They represent the cost of verifying the identities of South Africa's most economically marginalised citizens — the very people the financial system has spent decades trying to bring into the fold. When verification becomes expensive, the economics of serving low-income customers collapse. Banks, fintechs, and mobile operators are forced to choose between absorbing unsustainable costs or retreating from the communities that need them most.

South Africa has made remarkable progress in financial inclusion over the past decade. The country is also working to exit the Financial Action Task Force's greylist — a process that demands robust, affordable compliance infrastructure. A fee structure that makes compliance unaffordable doesn't just slow progress. It risks reversing it entirely.

The Fraud Risk Nobody Is Talking About

There's an even more troubling dimension to this debate that deserves far more attention: the security implications. When real-time digital verification becomes prohibitively expensive, organisations don't simply stop verifying identities. They revert to cheaper, less reliable methods.

Industry experts have warned that some firms may fall back on photocopying ID books — a practice that exposes sensitive personal documents and dramatically reduces KYC effectiveness. In a country where identity fraud is a persistent and growing threat, this is exactly the wrong direction. Fraud syndicates thrive on paper-based vulnerabilities. Every step backward from digital verification is a step toward the kind of identity crime that costs South Africans billions annually.

As Christo de Wit of Luno argued: "In the digital world, everything is real time." Slowing verification speeds or routing users toward analogue alternatives doesn't just inconvenience businesses — it actively undermines the security infrastructure that protects every South African's identity.

Adding insult to injury, the DHA has yet to provide the necessary technical specifications for the private sector to integrate its batch verification system — the very alternative it promotes as a cost-saving measure. You cannot ask an industry to pivot overnight and then fail to deliver the tools required for that pivot.

A Global Outlier

Context matters. According to Lynette de Beer, Acting National Credit Regulator, South Africa's new R10 per verification rate (approximately USD 0.53) sits at the higher end of global benchmarks for identity verification services. The global average is around USD 0.20, and the regional average is approximately USD 0.11. South Africa is not simply catching up to international norms — it is leapfrogging them in cost while lagging behind in infrastructure.

A country positioning itself as a continental leader in digital transformation cannot afford to price its own identity verification system out of reach. The ambition to build an Intelligent Population Register and a national digital ID system is laudable. But funding it by taxing the very ecosystem that makes digital identity work is counterproductive.

Where WhoYou Stands

At WhoYou, we verify over one million identities every month. We work with banks, telecoms, insurers, and government entities across South Africa. We see, firsthand, the consequences when verification infrastructure is unreliable — and we understand the need for investment in it.

But we also see the consequences of making verification unaffordable. And we believe the telcos are right to challenge this regulation in court.

"We fully support the modernisation of South Africa's identity infrastructure — it is long overdue. But modernisation must be funded sustainably, not through a punitive fee structure that drives the private sector away from real-time digital verification and back toward paper-based processes. The irony is stark: a policy designed to strengthen our national identity system may end up weakening the entire ecosystem that depends on it. The telcos are not fighting progress. They are fighting for the kind of progress that actually works — affordable, accessible, and secure identity verification for every South African."

— Craig Hills, Managing Director, WhoYou

The Path Forward

The court case is likely to hinge on procedural grounds — whether the DHA conducted meaningful consultation before implementing the fee. But regardless of the legal outcome, the underlying tension demands a more collaborative resolution.

South Africa needs a sustainable funding model for its identity verification infrastructure — one developed in genuine partnership between government and the private sector. The current approach, where a fee is imposed, contested, and litigated, serves nobody. Not the government trying to build a modern digital state. Not the businesses trying to serve their customers compliantly. And certainly not the South African citizens whose identities hang in the balance.

The telcos are right to fight this. Not because verification should be free, but because it should be fair. And right now, it is anything but.