“In the past, dominant institutions were built on: the scale of assets; mass production; exclusivity of relationships; high switching costs; and dependence on human ingenuity.
But in the future, institutions will be built on the scale of data; tailored experiences; optimisation and matching of digital connections; high retention benefits; and the value of human performance being augmented by technology.
This shift will have far-reaching consequences for the make-up of financial services, placing legacy business models under pressure from those whose businesses are built around these new attributes,”
– The New Physics of Financial Systems, World Economic Forum, 2018.
Gone are the days when it took 3 days to complete a payment transaction. In today’s world, a single second is too slow. Payments take place in a fraction of a second not just digitally over the internet but also in physical locations. Faster, immediate or real-time payments have been available in some markets for decades, but it was not until about four or five years ago when global momentum really picked up. The pace of adoption continues to accelerate with multiple high-profile markets such as the US, Europe and Australia coming online in 2018 with real-time payment ecosystems & a variety of smaller markets following suit.
While speed is clearly emphasised, the value proposition for end-users revolves around greater payer control, more granular and timely information exchange, stronger security and privacy, and easier integration and interoperability with other systems; all of which translate into more sophisticated services, simplified processes, and reduced costs for the overall economy.
While advances in some fields are so dramatic that they would have been considered science fiction just a decade ago, technical progress does not permeate evenly to all sectors. Payments infrastructure is an area where technological advances seem to lag behind, especially in some developing markets like our own. Moving money is still tied to 16:30 pm transaction cut-offs and overnight batch processes. Payers still have to call payees to confirm funds were received. Information fields attached to a payment are still extremely short which limits the usability. All these limitations appear to be inherent to mainframe-based core banking applications and outdated network infrastructures. All of which leaves us with legacy restrictions in the form of delays, manual processing and high costs.
One such legacy restriction in South Africa that has received considerable press of late is the Debit Order Payment Stream. A lack of certain authentication protocols has given rise to problem areas such as unacceptable levels of unpaid and/or disputes and rising levels of fraudulent behaviour.
The payments and banking fraternity have responded with an authenticated debit-order payment stream called DebiCheck (Go-live postponed to 2020). The goal of which is to provide Debtor protection through the presentation of an Electronic Mandate (think OTP) by the Debtor Bank to the Debtor for approval and the verification of every collection against this mandate. Creditor protection will be targeted through the limited disputability of the verified collection and the storage of the Electronic Mandate by the Debtor Bank for the duration of the Mandate.
Legacy restrictions aside, the consensus is that this is a step in the right direction; however, given that the major banks have already outlaid in the region of R4 Billion to manage and store these mandates, can end-users expect to pay less for a debit order? The jury is still out on that one.
Fortunately, as software goes on to eat the world, customer demand for better services, coupled with the competitive pressure from Fintech, and innovations such as open banking APIs, artificial intelligence and distributed ledger technologies continue to push the industry forward. In fact, in 2017 the Payments Association of South Africa (PASA) invested in a comprehensive research initiative:
“…to understand international modernisation initiatives, the drivers of the initiatives and how each jurisdiction (global market) aimed to achieve each of the goals by prioritising certain initiatives.”
The outcomes & subsequent goals can be found on the PASA website under “Project Future” but the snapshot version resembles the real-time payment ecosystems found in high-profile markets.
It’s a very ambitious roadmap but there is room for cautious optimism. With certain major banks ready to open their banking API’s to qualified vendors, three new digital banks entering the market in 2018 and Fintech investment showing positive growth, perhaps the not-too-distant future of payments in South Africa will see legacy restrictions overcome in new and exciting ways. We’re holding thumbs.