South Africa faces a period of unprecedented change in the payments market over the next six years as regulators and key industry players alike seek to employ digital and mobile technologies to increase efficiency and lower costs in a concerted effort to drive financial inclusion.
Deloitte South Africa (SA), in conjunction with iCombine recently released an insights paper on payments titled “The Regenesis of South Africa Payments - What needs to change?” based on research conducted across global territories where developments and trends
appeared the most impactful. The most prominent and South Africa-relevant trends identified were instant payments, centralised national identification, open application programming interface (API) and mobile payments.
Based on the identified trends, the team interviewed 34 payments experts from 22 different institutions in SA, ranging from the regulators and the Payment System Operator (PSO) through to the retail banks, neo-banks, payment service providers, financial technology providers, e-commerce payment service providers as well as large physical retailers. Respondents were asked about the current state of the South African National Payment System (NPS), the selected global trends, and their relevance in a SA payments context with the objective identifying areas of consensus as well as obtain insights into current and foreseen changes in the payments industry.
Deloitte South Africa’s Regenesis of Payments launch event convened a panel, moderated by Deloitte Risk Advisory Cyber and Technology Risk leader Shahil Kanjee, of financial services experts that included:
Discussions focused on the four trends identified and the story behind the insights provided by respondents. Instant payments was identified as a key area that could make significant impacts
on the way South Africans make payments. How this development will be achieved received mixed views. Many suggested that the existing Real-Time Clearing (RTC) system, coupled with overlay services, could be a short-term solution, while a more future-proof solution is sought for longer run adoption
To change the status quo and bring the informal sector into the mainstream economy, the survey found that mobile payments need to replicate the features of cash in terms of trust, convenience and reusability. In South Africa, the current lack of industry wide open API standards and the absence of an NPS fintech-inclusive operating framework have encouraged fintechs such as SiD, iPay and Instant EFT to innovate. Currently, these fintechs cannot connect to banks directly for access to permissioned customer data.
As a result, screen scraping or HTML parsing has emerged as a way for Payment Service Providers (PSPs) to provide the innovative services that satisfy customer needs. All interviewees indicated a willingness to participate in an industry-wide open API pilot to inform policy and yield beneficial results by addressing areas where standards are required, between banks, fintechs and retailers
“Deloitte foresees that many factors may accelerate the adoption of open banking in South Africa. These include the regulator’s tendency to model the UK regulations, the potential inclusion of overlay services in the South African payment system infrastructure, the impact of the Protection of Personal Information Act and the fact that most institutions are already working on APIs,” says Akiva Ehrlich, Deloitte Risk Advisory Africa Director and Payments Leader.
Digital identification (ID) is increasingly the focus of policy discussions across several countries, with various governments proposing or implementing national digital ID programmes. Payments participants in South Africa strongly support the need for a South African national digital ID to be implemented with one reason being that a digital ID enables access to financial services and thereby facilitates financial inclusion.
Fintech Head at the South African Reserve Bank, Arif Ismail, closed the event with a definite stance that policies need to catch up and regulation should not stifle innovation.
The industry needs to look at how to overcome the challenges of regulations like KYC. “We certainly need to provide education and address the fear of becoming known in relation to tax obligations”, says Deloitte Consulting Africa Associate Director, Paula Buchel. “The first thing that came out was the need for collaboration, there is recognition that there is a need for an environment that will encourage collaboration, but not be deemed to be anti-competitive.”
One of the reasons for the lack of interoperability with mobile payments is the absence of clearly defined industry standards and implementation of them. For example, South Africa doesn’t have industry standards for QR codes or mobile cash-in and cash-out. Also, the biometric authentication standard established for use with EMV chip cards have not been implemented by the industry. The industry requires standards akin to those used in the card payment stream to achieve the same level of interoperability in other payment streams. The move towards ISO20022 standard should assist with interoperability with other systems in the future.
“Change is coming – in fact it is already here and there is a sense of enthusiasm and expectancy. There is a sense that we are poised to enter a new chapter of inclusive payments and we can learn from other markets but implement it in a way that addresses the needs in South Africa”, concludes Buchel.