Evolving payments landscape in Africa threatens traditional bank account services

• Complexity and cost of immediate payment service have been the key barriers to the participation of banks in the provision of real-time payments
• Real-Time Clearing in South Africa contributes 2% to total retail payments
• Mobile Point of Sales have been a significant disruptor in the payments industry as they are relatively affordable compared to the traditional POS systems

In this digital era, organisations are adopting disruptive technologies and digital data to improve their businesses and create new opportunities. However, security and privacy are major challenges of digitalisation. 

Some African fintechs such as ThisIsMe make transactions more secure through the use of identification technology like biometrics, artificial intelligence, machine learning and tamper detection. ThisIsMe’s platform enables businesses to combat cybercrime, to ease customer onboarding and transaction approvals using the fully digitised Know Your Customer and onboarding solution. The fintech held a record for the fastest FICA verification in 2018.

The key drivers of payment innovations in Africa have been financial inclusion and enhancement of customer experience. Cellulant is the first African company to build Augmented Reality powered by “try-on” experiences in Facebook Messenger. It extended its product offerings by including Mula shops on the Mula payment platform Tingg. The application enables customers to shop online, send and receive money and also provides a payment gateway enabling merchants to accept mobile and online payments. 

Mobile Point of Sales have been a significant disruptor in the payments industry as they are relatively affordable compared to the traditional POS systems. Yoco, a smart technology payments company, offers a card reader and app-branded Yoco Point of Sale, which enables users to turn smartphones/tablets into payment terminals. The application provides multiple payment options and additional features that help merchants to manage their business (monitoring sales and staff performance, inventory, organising stocks) directly from the app in real time from anywhere in the world.

Throughout Africa, there is a rise in the number of large corporates that are partnering with fintech startups that offer innovative technology in order to extend business or address problems.

The partnership between Kenya’s Family Bank and financial technology firm SimbaPay, is an initiative that connects China’s largest payment service and Africa’s largest mobile money ecosystem in real-time. They offer instant money transfer service that enables Family Bank Limited or M-Pesa customers in Kenya to send money to WeChat users in China. The money transfer from Kenya can be done through the Family Bank PesaPap mobile banking app or M-Pesa. This platform is expected to boost trade between the two countries as it simplifies the payment process and also enables micro-small firms without bank accounts to directly buy goods from China.

Though the advancement in the payments sector is mainly driven by the private sector, it is also partly due to public sector efforts. Several African governments launched initiatives such as Nigeria’s platform to pay stamp duties, South Africa’s Project Khokha and Namibia’s NamPay designed to improve the payment systems. Although, there has been notable progress in Africa’s payment space, security and integration are key to the further growth of the industry.

Complexity and cost of the Immediate Payment Service (IMPS) have been key barriers to the participation of banks in the provision of real-time payments

Regulatory initiatives are proving to be the primary drivers behind the increased adoption of real-time retail payments systems (RT-RPS) globally. However, the complexity and cost of the Immediate Payment Service (IMPS) have been the key barriers to the participation of banks in the provision of real-time payments. 

Only four countries in Africa – South Africa, Nigeria, Ghana and Kenya – have currently live RT-RPS networks that provide an interoperable and fast payment system infrastructures for banks and non-bank financial institutions. Namibia will join this club by end of 2019. However, most African retail time clearing system have posting and/or settlement  times longer than 30 seconds, and are generally considered too slow to support improved P2P usage. Only Ghana, South Africa and Namibia are on ISO 20022 messaging format.

Real-Time Clearing in South Africa contributes 2% to total retail payments

South Africa was one of the first countries to adopt real-time payments in 2006, through the Real-Time Clearing (RTC) service provided by BankServ. Although the founding members who benefited from the first-mover advantage were Absa and Capitec, the RTC transaction service is now available through the majority of clearing banks. 

South Africa’s RTC service allows customers to expedite payments, as the system processes transactions within 60 seconds using a two-pass message process on an ISO 8583 format. RTC transaction values are limited such that real time transactions of higher value are routed via Real-Time Gross Settlement.  There has been a steady rise in the use of electronic payments in South Africa over the past decade (Figure 1). Similarly, there was an upward trend in the volume of RTC during the period 2010-2016 and yet RTC only made up 3% of the retail transactions in 2016. There was a sharp increase of 61% in RTC volumes and approximately 32% increase in value of transactions in 2018.

Several factors have hampered RTC from reaching its full potential in South Africa, these include: the high fees charged by banks for the RTC service, the use of ISO8583 messaging which prevents the carrying of the additional data necessary for rigorous treatment of transactions and value-adds, narrow use cases for RTC, and customer lack of awareness of the RTC service. Extending the RTC capability to broader use cases and transaction types, such as low value micro payments can potentially accelerate the velocity and reliability of payments in South Africa. Lowering charges for real-time payments would stimulate take-up of RTC service by customers. 

Strong use cases promoting uptake of NIBSS Instant Payments (NIP) in Nigeria

NIBSS Instant Payments (NIP) is an account-number based, online real-time inter-bank payment solution developed by the Nigeria Inter-Bank Settlement System (NIBSS). It is a point-to-point funds transfer service that guarantees instant value to the beneficiary. According to NIBSS, Nigeria is the first country in the world to have deployed such a solution in 2011. Though NIP service begun with only two commercial banks, the number of participants has grown to include all commercial banks, mobile money operators, and micro-finance banks. With NIP transactions, the payment recipients receive funds within 10 minutes of the transaction being completed. The NIP service has a maximum limit for transfer of $13,788 (NGN 5 million) to individuals and $27,576 (NGN 10 million) to corporate bodies. 

NIBSS reports that the total number of unique customers (based on account numbers) who carried out an instant transfer increased from 9.5 million in 2017 to 15.6 million in 2018 for the January to June period. Besides the convenience of near instant payments, NIP has other use cases which have promoted its uptake; for example, NIBSS e-Billspay which leverages NIP, has demonstrated NIP’s functionality for everyday payments. Of all instant payments between January and June 2018, 77% occurred using a mobile phone according to NIBSS.

Over the past decade, there has been rapid growth in NIP usage but a relatively slow growth in e-bills pay transaction volumes.

Nigeria has seen a major push for real-time payments via mobile phones so as to extend basic payment services to people with no access to banking facilities in order to enhance financial inclusion. In 2016, NIBSS collaborated with Central bank of Nigeria, MNOs and commercial banks, to launch the mobile payments innovation mCash, which was designed with a financial inclusion focus, leveraging on NIP to make low-value instant payments to merchants. The customer uses the merchant’s unstructured supplementary service data code to pay for goods and services. However, despite the advancement in digital payments through innovations such as NIP and mCash, the uptake of mobile payments in Nigeria is still low. 

Real-time payments systems are being implemented in different ways across countries, ranging from the simple adjustment of current legacy infrastructures to facilitate real time payments, to the building of brand new innovative systems. Although approaches to developing instant payments system may differ across the Africa countries, the key objectives and requirements are the same – that is to deliver real time value, increase payment efficiency and to boost innovation, while remaining compliant and secure.