REGIONAL SPOTLIGHT: SOUTH AFRICA
First National Bank is leading the charge as South Africa’s major banks gear up to take payments to a new level. Chief Digital Officer Raj Makanjee and CEO of Commercial, Gordon Little, explain how its partnership with HPS could transform the future of transfers The digital payments landscape in South Africa is a challenging one for its native big banks. An overwhelming majority of retail payments (73 per cent) were cash-based before the COVID-19 pandemic hit, according to the annual report from the Payment Association of South Africa. And yet 80 per cent of the population is banked, mobile penetration is high and the country’s payment infrastructure has been rated in the world’s top five. As with most economies, digital transactions, by necessity, increased when communities locked down. One online payment platform in South Africa noted a 35-to-40 per cent rise in transactions, as well as a rise in the number of retailers requesting online payment systems, according to McKinsey. But the extraordinary circumstances of 2020 mask systemic barriers to sustained and widespread digital usage that the banks are trying to address before they lose market share to South Africa’s growing number of challengers and foreign Big Tech.
“One of the challenges we have in South Africa is that we have this very formal economy where card acceptance and electronic payment acceptance is comparable with most developed countries. But then we have the informal, historically disadvantaged, township-based economies, that are still very cash-based,” says Raj Makanjee, chief digital officer and retail and private banking CEO for First National Bank (FNB). Patchy network connectivity in rural areas and high data costs make mobile banking uneconomic for many. To add to the complexity, while nearly everyone has a mobile phone, less wealthy and non-metropolitan communities, in particular, have handsets based on the USSD (Unstructured Supplementary Service Data) format, a text-driven technology that doesn’t support most current mobile banking applications. FNB itself has nearly five million transacting customers, but still only a little more than half (2.8 million) used apps on
their phones to access its services by the start of 2021. For banks and consumers alike, this disparity means additional cost and less security in payments. And it’s why the Payment Association of South Africa set out, in 2018, to create a payment system that’s ‘as good as cash’; a low-cost, secure, instant and easy-to-use capability that’s agnostic to where the payment originates (be it mobile wallet, bank account or card), thus ensuring universal access to digital transactions. Meanwhile, banks are transforming their own payments platforms and back offices as they prepare to compete in an all-digital future while accommodating non-digital transactions for as long as they are needed by this two-lane economy. FNB was the first of them to partner with payment technology provider HPS, to roll out its PowerCARD platform. This has allowed the bank to take a green-field approach to its payments architecture – so far with zero disruption to existing customers as the bank ditches its outdated, retrofitted internal payments system. Importantly, it addresses two co-dependent parts of its value chain – card issuing and merchant acquiring. “On the issuing side, we’re using the HPS PowerCARD platform to build out new solutions that we believe will disrupt but then benefit both clients and ourselves,” says Makanjee.
All to pay for: There’s huge opportunity in South African payments – and big challenges, too
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Issue 21 | TheFintechMagazine
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