Kathy Gibson is at Deloitte in Woodmead – South Africa has fallen behind the curve in the payments markets.
This is according to the Deloitte Regenesis of SA Payments survey, launched today in Woodmead.
This is ironic, says Paula Buchel, associate director of Deloitte Consulting, because South Africa was traditionally a leader in the payments arena.
“However, change is in the air,” she adds.
Some of the change drivers are the NPS Vision 2025 driven by the SA Reserve Bank; the NPS Act Review by National Treasury and the Reserve Bank; Project Future by the Payments Association of South Africa; and the Rapid Payment s Programme of BankServAfrica.
“Change is coming – in fact it is already here,” Buchel says. “There is a sense of enthusiasm and expectancy.
“Yes, South Africa is still a leader in innovation, but it is taking place within individual bank entities.”
The Deloitte study started by looking at global payment trends. The team identified four areas to examine: instant payments, mobile payments, open banking and digital identification.
Two additional issues that are relevant to South Africa are financial inclusion and the reliance on cash.
Respondents to the survey identified India as the country with the best use case for South Africa to follow, with the UK some way behind.
The biggest area of impact for South African industry is likely to be instant payments, according to 27% of respondents, followed by request to pay with 24%. Following with 15% are open API and mobile payments, then DebiCheck, proxy payments and contactless payment lagging at 6%.
To date, the uptake of realtime clearing (RTC) in South Africa has been hampered by the high price – and the fact that not all banks are using the system.
The research finds that the current architecture does not lend itself readily to innovation. This is compounded by the use of the outdated ISO8583 messaging standards and the fact that there is no national brand name for RTC. “It isn’t yet a thing, because it has no brand,” Buchel says.
She points out that, in Norway, Vipps is the brand associated with instant payments and has even become a verb in the country.
There are a number of issues at hand when it comes to the growth of mobile payments. “Retailers tell us that contactless is growing at a faster rate than mobile,” Buchel adds.
However, there is huge potential: mobile phones are ubiquitous, so mobile payments should take off, she adds.
Mobile payments have been hampered by banking and payment regulation in South Africa. These include the Anti Money Laundering (AML) and FICA requirements that are a hindrance.
There is also a lack of mobile industry standards, Buchel adds. Until the different systems are interoperable, there will be limited uptake.
Of course, the high cost of mobile data remans an inhibitor to mobile payments.
Open banking is an interesting arena, and opening up the national payment system will help this to happen.
It is happening in South Africa, but usually within independent ecosystems, Buchel says.
It is also happening largely via workarounds rather than being at the core of systems.
The survey concludes that regulation alone cannot achieve the imperative of open banking, the outcome is dependent on the participants, their engagement model, co-ordination, effective data mining, technology innovation and the implementation of overlay services.
The Reserve Bank is looking to the development of an open banking standard, with the customer in control of his own identity.
Digital identification could hold a number of benefits for South Africa. It would address know your customer (KYC) requirements, grow biometric authentication, and offer a more seamless user experience.
“A single national database addresses financial inclusion as well,” Buchel says. “Once anyone is in the system, they will have access to other products – even the national health system could benefit.”
She adds that a theme throughout the paper is data privacy and security. “We have to be cognisant of the importance of warding off crime in this space.”
Digitalising the informal sector is an issue that is specific to South Africa, and is crucial for the uptake of mobile payments in the country.
In fact, 90% of the trade of informal traders is in cash.
This is crucial when you consider that 40% of food sales in South Africa go through informal traders.
“Why does cash still dominate?” Buchel asks. The reasons include data cost and connectivity, as well as a lack of trust in the banking sector.
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.
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.”
Going forward, the survey found that a number of things need to change.
“The first thing that came out was the need for collaboration,” Buchel says. “There is recognition that there is a need for an environment that will encourage collaboration, but not be deemed to be anti-competitive.”
Regulation will also be important: all stakeholders want legal certainty about roles and participation in an NPS.”
In fact, all survey participants said they would be interested in a participating in a pilot project.
Architecture is another critical factor, and needs to be designed to take the NPS into the future: it should be modular, and service oriented; and have the agility to change without losing structural integrity.
Finally, a requirement for projects suggests that the industry wants to see proof of concepts on an agile, time restricted basis. “There is a sense that industry wants to get involved on a agile basis, to deliver some of these projects.
“Our final takeaway is that there is a sense of optimism,” Buchel says. “There is a sense that we are poised to enter new chapter. We can learn form other markets and do it in a way that addresses the needs in South Africa.”