Banking in South Africa is on the edge of dramatic transformation, but the industry seems to have lost its nerve in making the leap. Initiatives like the BankservAfrica’s Rapid Payments Programme and its Payshap instant payment service maintain the country’s banking image as one of the world’s most advanced, yet the average customer does not experience significant change.
“Faster payments programmes in countries with strong government backing have been very successful,” says Dave Glass, CEO and co-founder of Electrum Payments, a fintech company based in Cape Town.
However, in South Africa, he says, the scenario is slightly different.
“Banks have acted very much in self-interest, as they should within the regulatory framework, but that framework is outdated. The South African Reserve Bank (SARB) is working extremely hard to try and get the juice out of the current regulations to improve things, and at the same time, writing new regulations, which we expect to go through next year.”
While the SARB intended for PayShap to be free for consumers, the reality is different.
“We live in a world where payments are very far from free. In many cases, interchange, which is the fee typically paid from a sending bank to a receiving bank, was set by the banks themselves.”
The SARB set the interchange fee for PayShap at around 11 cents, a fraction of what it was for Real-Time Clearing (RTC), yet this cost saving has not been passed on to consumers. Glass attributes this to the lack of competition.
“There’s no equal market access. The other big driver is that the scheme, currently owned by the banks, has not made provision for merchant acceptance yet.”
This has left South Africa in a limbo, waiting for the SARB to enact new regulations and for the banks to adapt.
Electrum is instrumental in developing a new generation of technology that enables banks to offer faster, more scalable payment solutions. It was part of a landmark partnership with MTN SA and Investec, which saw MTN become the first non-banking company to join the PayShap digital payments platform, via its MoMo mobile money unit. Electrum also works with four of South Africa’s leading banks to optimise their payments, as well as a number of large retailers. Its systems currently process over 4-billion transactions a year across various platforms
The future of banking in South Africa, Glass believes, will include more specialised banks focusing on specific demographics or market segments.
“There will be a lot more pure-play organisations, like Yoco, that are hyper-specialised in the SME merchant space. At the same time, the mega banks like Standard Bank will continue dominating the enterprise space. You’ll probably see a bifurcation of the banking landscape, where some banks will get caught in the middle, trying to do everything but nothing well.”
Despite the push towards digital payments, Glass does not see cash being phased out anytime soon.
“Cash will certainly have a place in the mix. For many retailers, cash remains cheaper than card payments, despite the costs of handling it.”
However, technology, particularly cloud computing, will play a crucial role in the future of banking.
“Cloud has had a massive impact on our ability to deliver these super high-availability systems to banks. This technological shift has enabled companies like Electrum to offer scalable, cost-effective solutions without the need for extensive physical infrastructure.
“Regulation, plus digital, plus cloud creates enormous opportunity, not only to promote financial inclusion but also to transform the way people interact with financial services.”
“The journey towards a truly modern banking system is far from complete. No one can say in South Africa that the banking system has addressed the bottom of the pyramid. It’s time to look at a new way of operating.”
* Arthur Goldstuck is CEO of World Wide Worx and editor-in-chief of Gadget.co.za. Follow him on social media on @art2gee.