A concept for modernising future online payment solutions for South Africa is currently under review following research conducted into the country's economy and its unique challenges.
The concept aims to achieve the goals set out by the South African Reserve Bank's (SARB) Vision 2025 policy document as well as key industry goals.
Called "Project Future", the research began in 2017 and was done in parallel to research to understand international modernisation initiatives, their drives and how to achieve each of their goals. The research was conducted by Lipis Advisors and IQbusiness, commissioned by the Payments Association of South Africa (PASA) and BankservAfrica and published in a report called "Considerations for modernising South Africa’s low value payments infrastructure". (Sept 2017)
“Modernisation of payment solutions available in South Africa needs to involve a new way of thinking. A new understanding of the payment ecosystem must be created; one in which the roles of traditional players and other stakeholders are re-evaluated. The concept of modernisation needs to evolve from technical, feature-based thinking to goal-directed thinking,” the report states.
The 20-page report goes into great detail, but what stands out is the importance of acknowledging the entry of new payment providers and the development of new payment services in response to consumer demands and competitive pressure. The message is clear – the development of payment services that more completely serve modern customers and user needs must be encouraged.
The research found that successful modernisation processes are defined by goal setting, consultation and clear management. It outlined factors present in well-managed successful modernisation initiatives globally as inclusive representation, a proper level of seniority in governance bodies, and empowered decision makers.
The inclusion of smaller financial institutions and key players such as Yoco, Jumo, the Sun Exchange and others is often seen as vital in meeting the needs of modern users. Bringing these perspectives into industry consultations and implementation meetings is needed.
Having the proper level of seniority in industry consultations and road map discussions ensures that industry representatives have a holistic view of business processes and allows for quicker decision making.
Reaching full consensus across diverse participants is often impossible, and the body governing the modernisation process must be empowered to make decisions to avoid inertia and maintain clarity of purpose.
It is clear from the report that industry must embrace the need for change, especially for brands like Yuppie Chef, Lottoland, Absolute Pets and others, for which streamlined eCommerce is vitally important.
“The banking industry will have to focus on making the pie bigger – on inclusive growth,” the report states. “Studies show a direct link between personal income, financial inclusion and financial participation. By strengthening the economy, the industry can help contribute to the stabilisation of society while at the same time enlarging its customer base.”
The modernisation of online payments solutions catering to modern customer and user needs has seen an increase in the eCommerce trend, used by consumers throughout Africa to buy products and services, as well as place bets and play online, from anywhere, any time.
And eCommerce in Africa is booming. There are currently 65.4 million eCommerce users in Africa and the Middle East, with an additional 20 million users expected to be shopping online by 2021.
This has been driven by high mobile penetration, rising consumer confidence in online transactions, and the expansion of brick and mortar retailers into the online sphere by adopting a multi-channel approach.
By offering online payment solutions, these sites are proving that placing the customer at the centre of the product and service design can be particularly successful. This is true where the customer experience is one of seamlessness and ease, and where the focus is not so much on the payment mechanism but on the service itself. The payment becomes virtually invisible in the process of a transaction and simply enables the transaction.
“Payment system developments in the past decade have been rapid, overshadowing those of previous decades. As part of these developments, consumers have benefited from innovations such as mobile device and Internet payments, which make electronic payments and remittances possible across jurisdictions. Innovation is the hallmark of a modern economy,” says Lesetja Kganyago, Governor of the South African Reserve Bank, in his foreword to "The National Payment System Framework and Strategy Vision 2025" document.
The "Considerations for modernising South Africa’s low value payments infrastructure" report also identifies the five high priority goals that can help to develop a low value payments infrastructure (LVPI) that serves all South Africans.
These 5 high priority goals are:
1. Promote competition and innovation and encourage the entry of new providers and the development of new services. This should increase the variety of services and consumer choice, improve services and customer experience, as well as attract new consumers.
2. Respond to consumer demands and competitive pressures and encourage the development of services that more completely serve modern customer and user needs, as well as help organisations to respond to competitive pressures, typically from FinTechs and challenger banks.
3. Interoperate with other payment systems - interoperability among payment systems helps ensure that payment services can reach all providers and users with uniform service levels. Benefits include widespread access, convenience and ease of use for customers, increased functionality through a collective network, as well as the positive network effects and economies of scale. It can also enable competition, which can lead to increased choice and lower costs.
4. Increase financial inclusion that ensures that consumers have access to and can effectively use formal financial products, including online payments. This contributes to inclusive growth and economic development and reduces costs and the risks associated with cash handling and management.
5. Increase flexibility and adaptability – increases the ability of the payment system to deal with the changing needs of society. Benefits include lower costs, improved services, increased innovation and competition and an improved customer experience.
Creating an LVPI for all South Africans
Several key overarching themes emerged from the research as essential design principles for the modernisation of the South African LVPI.
One critical theme is that the LVPI must be future-proofed and cater for new use cases as expectations evolve. The LVPI needs to be built with the next 20 years in mind. Just 15 years ago, no one could have foreseen the impact that smartphones would have on our lives, thus it’s fair to say that we may all be amazed by what emerges in the next 10 to 20 years.
Another is that the rise of on-demand services has resulted in consumers seeking seamless services and experiences, and collaboration among brands to provide these. Payments will disappear into the process as it becomes a holistic experience that is more intuitive, habitual and automatic, requiring less and less from the consumer to enable it.
The report highlights the fact that building for the economy that South Africans want requires that the LVPI be inclusive. It needs to cater for developed and developing economies in South Africa. It needs to support modern, advanced payments for the financially included and corporate users, but it also needs to provide paths in and out of the financial system for the excluded.
It is also important that the LVPI is low-cost. The high volume, low value nature of LVPI payments requires a cost efficient infrastructure that supports the underbanked to increase financial inclusion.
Lastly, the LVPI needs to be scalable to ensure that it caters for the economy that South Africa has and for the one it wants.
“No matter what the real outcome is, the payment system will have to cater for a bigger population and a more tech savvy consumer. Population growth estimates put numbers at 59 million by 2020 and 65.6 million by 2030. Millennials are, at the oldest end, 37 years of age today and the generations born since will all continue to be more comfortable with technology and therefore are likely to accept newer payment methods,” the report states.