RTP Scheme Aims To Convert Cash-Centric, Highly Banked Consumers
Compared to other African markets, where many people don’t have bank accounts, more than 80% of the people in South Africa have access to a bank account.
PayU Africa CEO Karen Nadasen said that most people don’t use this access to financial services because they still rely on informal channels and do most of their business in cash.
Nadasen said when people get paid, they immediately take out all their money and pay for goods and services in cash. About nine out of ten retail transactions still happen in cash, which costs the economy billions of dollars, he added.
This is one of the problems that a new national payment system, PayShap, which the South African Reserve Bank (SARB) calls a “low-value, real-time rapid payment platform,” aims to solve.
Nadasen says that the new system, which was made in partnership with BankservAfrica, will help improve access to financial services, cut down on the use of cash, and reduce the security risks that come with that.
“The systems we had before PayShap were either inefficient or used screen scraping, but this gives the market a much bigger chance to grow,” she said. “Electronic funds transfer (EFT) works in real time and could get a lot more people to use digital payments.”
About 20 local banks offer the service right now, including the big four (Absa, First National Bank, Nedbank, and Standard Bank), and digital banks like Discovery Bank and TymeBank are joining.
So far, Nadasen said, there has been a lot of interest in PayShap. In the first week, 50,000 PayShap IDs were made, and since then, there have been between 1 million and a few million transactions every day.
But even though PayShap has been called a game-changer for South Africa’s digital payments ecosystem, its complex pricing structure and fees that are higher than EFT fees pose risks to its growth.
You’ve got prices ranging from 0 rand to 49 rand [$0 to around $2] which is extremely severe and also quite inconsistent,” Nadasen said of financial institutions (FIs)’ inconsistent transaction fees.
She compared it to free instant payment systems like PIX in Brazil or UPI in India, saying that South Africa could learn from them.
“[The no fee policy] is one of the primary reasons why the uptake of those payment systems has been so successful,” she said. “So, hopefully with time there will be a lot of market pressure [in South Africa] to drive these fees down to zero.”
Growing eCommerce
As of right now, PayShap can only be used for peer-to-peer (P2P) transactions. However, over time, it is expected to open up to the wider financial services sector, including FinTechs, creating a collaborative, interoperable system that can add other services like remittances to serve customers outside of the local market.
“We can look at markets like India that are more advanced in account-to-account (A2A) real-time payments, and which now has an integration with PayNow in Singapore to facilitate remittances,” Nadasen noted as an example, adding that “there’s a significant amount of innovation that can come out of this.”
Nadasen said FinTechs can use PayShap’s rails to extend lines of credit, increasing market participation and inclusivity.
She also said that because PayU is an aggregator with a large merchant network, it can integrate PayShap and offer it to its business clients right away as one of the payment options they have at any merchant site. This will help eCommerce grow in the local ecosystem.
Overall, Nadasen said that there are a few problems that need to be fixed before the system can compete with other real-time payment systems around the world. However, she said she is still hopeful that it will help South Africa’s fast-growing digital payments landscape.
“I believe that if we address the challenges, if we get more banks on board, reduce the fees, improve the user experience (UX) over time, better fraud management — all that is definitely going to increase participation and drive down cash usage,” she said.
