Six Payment Megatrends Identified in South Africa

BankServ Africa builds and operates essential payment infrastructure in South Africa and 20 other countries. It operates as a utility with a mutual ownership structure of Nedbank, Absa Bank, the Standard Bank of South Africa and FirstRand Investment Holdings.

In addition to being an authorised Payment Clearing House System Operator, it facilitates increasing interoperability on a regional and cross-border level. It claims to be Africa’s leading automated clearing house, providing the transactional link between many of the continent’s major payment institutions.

In its annual report it provides details of the evolving payment landscape in South Africa, identifying what it describes as eight megatrends.

Consumer demand for greater personalisation

Previously sophisticated and niche infrastructure is now a standard commodity that is taken for granted. Newer, more flexible technologies with richer data are enabling better ways to deliver payments.

Technological advances

From open banking to central bank digital currencies (CBDCs), regulators are using regulations actively to shape the future payments landscape. They are promoting increased competition and for the cost and barriers to financial services to decrease, including easing access to and the availability of financial services.

Increasing regulatory requirements

Newer entrants, such as digital start-ups, social media players and fintechs, are building new payments ecosystems and business models to enhance their value propositions. This is likely to relegate, or replace, existing payment value chains and could disintermediate traditional suppliers from their customers.

Standardisation and harmonisation

ISO 20022 standards have been introduced in response to the significant increase in cross-border operations and transactions. This trend has been hampered by inconsistent payment standards that make cross-border interoperability difficult. ISO 20022 offers a universal, truly interoperable standard, making it easier to integrate digital global payments ecosystems.

The benefit of greater interoperability is highlighted in an area such as remittances. Each year R21.9 billion is sent abroad from South Africa as remittances. Mostly this is sent monthly and the average cost of sending $200 to South African Development Community countries was 12.64% of the amount sent compared with the global average of $7.13%. In reality, the data shows an average cost of 17.08%. BankServ has seen a swing to using formal remittance channels as new, lower-cost products and services become available. This increased 159% to R10.56 billion between 2016 and 2018.

Digital currencies and mobile wallets

Two ideas are combined in one heading by BankServ Africa. First is the increase in the adoption of digital payments, accompanied by rapid advances in digital payment solutions. A trend accelerated by the COVID-19 pandemic. The use of mobile wallets and social media solutions are a part of this change. Second, a growing awareness and adoption of cryptocurrencies, again made more accessible by technological changes.

The rise of the platform economy

Driven by technological innovations and increased online connectivity, economic and social activity is being increasingly facilitated by platforms. Payment platforms are using the power of cloud services, service-oriented architecture, and open APIs to create apps and online tools that give customers new options and tools.

Faster or real-time payments

Around the world, banks and governments have been investing in faster or real-time payments, requiring the fundamental rebuilding of traditional payment rails to allow national payments systems to deliver them. This investment is seen as necessary because the speed of payment is seen as a core requirement by banks, merchants and consumers to do business and when choosing a marketplace to transact in.

The cost of cash

The South African Reserve Bank (SARB) reported in its September quarterly bulletin that cash makes up 2.7% of GDP, with R166 billion in circulation. BankServ estimates that using an activity-based accounting methodology, it costs R85 billion per annum to ensure an adequate supply of cash. This figure splits into R23-25 billion for the entire wholesale cash supply chain and direct costs of R60 billion to move, handle and store cash securely. Banks order over R70 billion a month for their ATM and branch needs.

Last word

This edition of Cash & Payment News™ includes a recent speech by the Governor of the Reserve Bank of Australia about the future of payments. It is interesting to observe the extent of the cross-over between his speech and these megatrends, not just the changes he highlighted but also his comments on the community and political priorities. Clearly change is cross-border with technological change at the heart of what is happening.