South Africa To Launch Modernised Instant Payment Service In 2023

November 3, 2022
After being a pioneer in setting up instant payments 16 years ago, South Africa is now preparing to launch a new instant payment service looking to mirror the success of similar services in India, Singapore and Thailand.

After being a pioneer in setting up instant payments 16 years ago, South Africa is now preparing to launch a new instant payment service looking to mirror the success of similar services in India, Singapore and Thailand.

Last week (October 26), BankservAfrica announced that South Africa’s new low-value, interbank, real-time digital payments service called PayShap will launch in 2023.

The rollout will mark a major milestone in South Africa’s journey to increase financial inclusion, reduce dependency on cash and create a modern, integrated platform for digital payments, according to BankservAfrica.

“Change is coming for the South African payments landscape,” Andres Perez, director of the Fintech Association of South Africa, and Dave Glass, CEO of Electrum, said when commenting on the announcement.

“With the goal of making real-time payments cheaper and more efficient, the programme is expected to revolutionise consumers’ transacting experience,” they stressed, comparing the benefits offered by PayShap with that of India’s Unified Payments Interface (UPI).

PayShap is part of the industry-led Rapid Payments Programme (RPP) and is being built by BankservAfrica, an automated clearing house (ACH) owned by South Africa’s “big four” banks — Absa, FNB, Nedbank and Standard Bank.

The service will initially be offered by these banks, but will add further participants in the following months.

“Currently, the focus is on banks building features that support PayShap into their existing core systems,” Perez and Glass said, adding that as the programme is rolled out “additional features will be developed to continue driving it forward”.

The new service will be released in two stages, with the first phase enabling instant clearing and the ability to either pay by using account details or a unique identifier, such as a mobile number. In the second stage, participants will introduce a request-to-pay function, according to the announcement.

“When fully implemented it will offer a more effective and cost-effective instant payment service, which will broaden and deepen financial inclusion in the country,” Perez and Glass stressed.

PayShap forms part of the South African Reserve Bank’s (SARB) Vision 2025, Perez and Glass said, of which financial inclusion is a key objective.

Although more than 90 percent of South African adults have a bank account, most consumer transactions are still cash-based, they added.

From RTC to PayShap

South Africa was an early adopter of low-value instant payments through the launch of real-time clearing (RTC) in 2006.

RTC, whose founding members include Absa, FNB and Capitec, enables the processing of transactions within 60 seconds. However, unlike other instant payment systems around the world, RTC is not available 24/7 as there are cut-off times for the processing of faster payments.

In 2020, SARB noted that a range of challenges hinder the widespread adoption of RTC and the service was generally offered as a premium service.

As a result, volumes across the services are very low, which VIXIO estimates at 83m transactions in 2020.

Part of the problem is that RTC fees are considered too high for mass usage and the consumer experience is generally poor since not all banks offer the real-time functionality.

In addition, the interchange fees for faster payments are determined by participants on a bilateral basis, which leaves smaller players with lower negotiating power at a disadvantage, SARB said.

PayShap, on the other hand, is designed to be “a viable alternative to cash payments across the underbanked, banked and SMEs”, Mpho Sadiki, head of real-time payments at BankservAfrica, told VIXIO.

According to Sadiki, RTC was built on legacy technology and runs on ISO 8583 standards.

“The advent of ISO 20022 standards, expanded use cases, API-based payments platforms and move to cloud technology necessitated the need for the industry to shift to a more modern and scalable interoperable real-time payment rail,” Sadiki explained.

PayShap is an interoperable payment rail that is aimed at facilitating low-value payments across both P2P, P2M, G2C and B2G use cases.

“The core focus and value proposition for our participants is to build a robust ISO20022 message-rich payment rail that will be able to truly compete and eventually displace cash in the micropayments ecosystem,” Sadiki added.

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