Although the future of open banking looks promising in South Africa, regulatory barriers and interoperability issues between banks and fintechs remain key drawbacks.
This is one of the key findings of the Modernised Payments in South Africa report published by cloud payments technology company Electrum.
The report provides insights into the dynamic payment landscape of SA, highlighting challenges and opportunities.
It includes qualitative and quantitative insights gathered from surveys conducted among various stakeholders within the local payments ecosystem, encompassing representatives from financial institutions, third-party payment processors (TPPPs), technology experts, merchants and consumers.
According to the report, the last few years have seen SA’s accelerating shift towards digital payments, driven by evolving consumer behaviours and technological advancements – significantly improving digital and financial inclusion.
However, a critical factor influencing the widespread adoption of these new payment methods hinges on their affordability, a collaborative open banking approach, and favourable regulatory policy processes, it notes.
As open banking gains prominence, the trend towards collaboration is critical, to accelerate the pace of innovation and also ensureinteroperability.
However, delivering effective interoperability between banks, third-party payment providers and fintechs, remains a key challenge that needs to be urgently addressed, the report cautions.
Efficient open banking will require collaboration, investment, and effort from all stakeholders.
“The two main things hindering collaboration are: regulation that is missing and lack of capacity for the banks to onboard third-party payment providers and fintechs,”explains Dave Glass, CEO and co- founder of Electrum.
“If these challenges are addressed, open banking has the potential to bring real benefits to the region. Banks are facing a dilemma with the demands from external parties to open access to their client accounts and they have statutory obligations to protect the keys to the vaults.”
As described in the South African Reserve Bank’s Vision 2025, interoperability refers to the ease of interlinking different systems on a business, as well as technology, level.
Examples highlighted by participants show that when it comes to QR payments and mobile wallets, there isn’t full interoperability yet and the adoption is quite low within retail or within the mass market.
“Mobile operators are not integrating well into the payments environments to activate their payment services. So, you know, Vodacom has got VodaPay, they actually own M-Pesa as well. MTN’s has MoMo and we don’t see those services in the general industry. It’s only used in the mobile network operator space, and there is the opportunity to use those payment streams across industries,” notes the report.
Other payment types like wallets and rewards programmes, as well as other modes of initiating transactions, for example, QR, tapping, or tap-and-go apps, need to have more standards to create the greatest interoperability.
Regulatory imperatives
The report underscores the critical role of regulatory frameworks, such as the National Payment Systems Act (NPS Act), in shaping and safeguarding South Africa's payment infrastructure.
According to the report, mutual trust between banks and fintechs can be improved through having appropriate standards and regulation - an important element for collaboration to provide robust and appropriate payment systems in which stakeholders can compete and innovate.
By establishing clear guidelines and standards, regulatory imperatives ensure that payment systems remain robust, resilient, and capable of meeting the evolving needs and expectations of consumers, businesses, and financial institutions alike.
This aligns with Vision 2025, which outlines a strategic roadmap for SA’s national competitiveness; emphasising investments in critical areas such as skill development, information and communication technologies, and international market engagement, it says.
“Having common regulatory standards as a basis for interoperability helps to lower fragmentation across all stakeholders and leads to a more effective payment system. The regulators believe that increasing interoperability between formal and informal payment systems, as well as between financial infrastructures, will increase efficiencies, lower costs, and lead to more competition and innovation in the provision of payment services.”
Updated regulation to deal with real-time fraud on high-volume, low-value payments and newframeworks for more direct participation of TPPPs in the national payment system is recommended.
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