Mainstream bank systems need to wake up and draw on the power of tech
"There is a generation of people growing up in Africa who have a cellphone long before they think of getting a bank account," says BankservAfrica CEO Chris Hamilton.
That provides an opportunity for banks to build digital systems from the outset, rather than having to migrate customers into new ways of doing things.
BankservAfrica, the largest automated payments clearing house in Africa, and Society for Worldwide Interbank Financial Telecommunication (Swift), the world's leading provider of secure financial-messaging services, are working to solve a systemic issue that could help SA take advantage of the information age: a better payments system.
The existing system is beset with inefficiencies due to old infrastructure, with two fundamental problems: the slow speed of concluding payments; and the capacity to relay only basic information between banks.
At an event in Johannesburg in November, the two companies urged the banking industry to invest in modern systems that will allow for effective real-time payments between banks locally and internationally.
"There is evidence to suggest a strong link between the sophistication and efficiency of financial market infrastructures (FMIs) and economic growth. For this reason, many governments, including SA, have made enhancements to FMIs a major priority," said Alain Raes, CEO for Europe, the Middle East, Africa and Asia Pacific at Swift.
With mobile penetration at 100% in countries like SA, Ghana, Mali and Gabon, according to GSM Intelligence, there is an opportunity to create digital payment solutions. But for that to happen, the mainstream banking systems need to catch up with the times.
A person in SA can immediately send or receive money through an intrabank transfer, for example from one Nedbank account to another. Interbank transfers, on the other hand, such as Standard Bank to FNB, typically take two to three working days. This is a problem. The current solution is a R40 fee for an instant payment, but this has proved steep for many South Africans.
The banking sector and the Reserve Bank have a plan, detailed in the National Payment System Framework and Strategy Vision 2025, that includes modernising the NPS to allow for deeper integration of SA's economy with the rest of the world, allowing companies and individuals to easily transact with each other locally and abroad.
Sasfin CEO Michael Sassoon said there's opportunity in the informal economy, such as quantifying the value of informal trading and helping businesses to scale through financial services enabled by technology.
"SA still has a big informal economy. Banks like Capitec have done much to engage the bottom of the pyramid."
There are repercussions of not having capable systems in place.
Apps like Tencent-owned WeChat in China, which allows you to text, order food and interact on social media, have given rise to new payment platforms outside the banking system. The traditional payments system had not been developed for the digital economy and Tencent to create their own parallel systems to facilitate mobile payments.
"For the banks, the battle is lost in China. They will never get those people back," said Martin Grunewald, executive head of the payments business at BankservAfrica.
Chinese regulators are now struggling to create a bridge between the traditional payment system and new digital ones.
To avoid this dilemma, South African regulators and the banking industry are trying to modernise their systems so innovations can simply integrate into the existing infrastructure.
Grunewald said developed countries tended to suffer from the inefficiencies of long-established legacy systems, whereas developing countries find it easier to build modern systems from the start.
SA operates a dual economy with a sophisticated banking system, which, for example, was a global pioneer in implementing a real-time payment-clearing system in 2006. But there are also high levels of poverty and many without bank accounts.
Local banks will probably have to retrofit new systems onto the old. This is not just one bank's problem. The industry has to invest as a collective in upgrading the system.
For SA, a good model to follow might be the one used in India, where tech firms and social media have the ability to integrate payments on the existing system.
Grunewald said: "How many people do you know who are not on WhatsApp?
Very few. But if you're in India, you can transact from your WhatsApp app."
Locally, Absa has used social platforms Facebook Messenger and Twitter through ChatBanking since 2016 for simple banking transactions. This year it launched ChatBanking on WhatsApp...