In the 1980s and early 1990s, South Africa was viewed as having one of the most modern payments system in the world.
By Martin Grunewald, executive head: payments business at BankservAfrica
Since then, we haven’t necessarily kept up with continuous modernisation of the payments system. Similar to what’s being seen in the country’s main economic sectors, investment in infrastructure took a backseat.
Although the payments industry developed one of the few debit systems in the world – Authenticated Early Debit Order Collection (AEDO) – this was really a means to solve the high debt levels post the 2008 crisis.
But there hasn’t been investment into the overall payments infrastructure such as payment rails, and we’re finding ourselves behind in low value, real-time payments and the migration to modern payments message standards such as ISO 20022.
Without these, we’re unable to address key issues in the country such achieving financial inclusion and building economic competitiveness, such as enabling trade amongst small businesses.
I recently embarked on a tour to Europe’s payments houses to gain insights and learnings. While Europe and Africa are continent’s apart there are similarities – and gaps in the payments space that resonates with where we, as the payments industry are – and heading.
The fine balance between stability and innovation
With fintechs being the buzz word over the past years, the real question is how are these merging with existing payments infrastructure?
The European Automated Clearing House Association (EACHA) has managed to find a solution between the old and the new. Since 2005, it has had 1400+ new entrants in the European Financial Services Market.
Initially, there was the ‘David versus Goliath’ view of banks vs fintechs, but now more partnerships are forming with new players tapping into existing infrastructure. Many are finding access to open banking solutions and real time payments attractive.
We’re seeing the similarity to South Africa because this is a journey that we’re still on – although we have a real-time payments solution, the market’s requirement of low value payments lacks.
There’s also opportunity for banks and fintechs to merge their expertise for a new payments solution.
Gaining momentum for intra-Africa trade remains key. Although the African Continental Free Trade Area will remove barriers, there’s the need for regional payments integration to ease trade and the cost of doing business.
The Nordics Payments Platform, ‘P27’ will transform the banking ecosystem, creating the first cross-currency, cross-country and real-time payment system in the world. P27 is set to be a boost for the 12th largest economy globally with 44% of GDP driven by international trade (there is large intra Nordic trade).
With full P27 by 2020, there will be one clearing platform, harmonised payment products and ability to reach a new scale and efficiency paradigm. Africa is sure to see the shifts in the coming years with a cross border payments solution that connects economies.
Experiences from other Automated Clearing Houses in Europe show that many continue to do well with processing and clearing payments. However, some have moved into the real-time or high value settlement spaces.
The most striking, however, is that one of the ACHs has not had a settlement failure since 2003.
How does South Africa – and Africa – really fare?
BankservAfrica kicked off a payments modernisation journey and has already reached key milestones such as our joint research with The Payments Association of South Africa (PASA) for the initiation of Project Future.
This is a collaborative effort to bring the unbanked into the formal banking system and enable low-value payments infrastructure.
Central to this is the Rapid Payments Programme (RPP) for instant mobile payments for low value items to assist with financial inclusion and building the economy, which BankservAfrica has already made good progress on.
We recently embarked on a study tour with PricewaterhouseCoopers and PASA to learn about payments modernisation in India, Thailand, Singapore and China.
As the Regional Payments Clearing and Settlement Operator in the Southern African Development Community, we’re also working on instant cross-border payments in the region. We’re also embarking on regional payments hub for true intra-Africa payments integration.
Although I gained a great deal from my European trip, I also have a great appreciation of where we, as the South African payments industry, are and what we’re doing to stay ahead.
Our operational expertise is still on par with the rest of the world. As we invest in modernising our product sets and offerings for the real-time global payments movement, we’re well on the road to advancing payments infrastructure.
It is important to note, however, that standing still or being indecisive is not an option for our future.