Modernised payments in SA: new report unveils trends and insights

Cape Town - Recent research into the South African payments industry has revealed that there is a clear trajectory towards the adoption of electronic payments. This transition not only reflects evolving consumer preferences but also presents promising opportunities for all stakeholders within the ecosystem.

Banks, merchants, financial institutions, fintech companies, and regulatory bodies stand to benefit from embracing innovative payment methods. Moreover, the widespread adoption of electronic payments holds the potential to significantly enhance financial inclusion across South Africa, providing broader access to financial services.

Modernised Payments in South Africa, published by Electrum, the market-leading cloud payments technology company, provides invaluable insights into the dynamic payment landscape of South Africa. With technological advancements, the emergence of new market players, and growing consumer demands, coupled with shifts in business strategies and regulatory frameworks, it is imperative for the country's payment ecosystem to evolve. This evolution is essential to maintain the National Payment System's reputation as a world-class infrastructure for payments.

"A significant finding of our research is that the concept of cash displacement as a goal has become intertwined with the drive for modernisation and interoperability," says Dave Glass, CEO and Co- Founder of Electrum. "As an outcome aligned with SARB's Vision 2025 goal of improved financial inclusion, the reduction in reliance on cash would undoubtedly be a welcome outcome of this drive. However, it may be worthwhile for the industry to consider separating these two concerns. By doing so, we can maintain our focus on making modernised payments accessible and affordable while empowering consumers and merchants to choose the payment methods that best suit their needs."

Other key findings from the report include:

1. Making Digital Payments Accessible: The report sheds light on South Africa's accelerating shift towards digital payment methods, driven by evolving consumer behaviours and technological advancements. However, a critical factor influencing the widespread adoption of these new payment methods lies in their affordability for end-users, particularly consumers. The report emphasises the pivotal role of cost-effectiveness in driving consumer adoption of digital payment methods. This focus on affordability not only aligns with the broader goal of enhancing financial inclusion but also underscores the imperative for stakeholders to prioritise cost-effective solutions that empower all segments of society to participate in the digital economy.
2. Financial Inclusion: Significant emphasis is placed on the role of modernised payment systems in promoting financial inclusion throughout South Africa. By leveraging advanced payment technologies, these systems work to bridge existing gaps in access to financial services across diverse communities. This aligns with South Africa’s Vision 2025, which outlines a strategic roadmap for South Africa's national competitiveness; emphasising investments in critical areas such as skill development, information and communication technologies, and international market engagement. However, interviews with participants in the banking sector revealed a notable challenge: while banks acknowledge the importance of Vision 2025 goals, many struggle to integrate these objectives into their modernisation initiatives. This struggle stems from the inherent accountability of banks to various stakeholders, including employees, shareholders, and the community. This observation underscores the complex balance banks must navigate between strategic national objectives and operational realities.
3. Fostering Fintech Innovation through Collaboration: The report highlights the critical importance of industry-wide collaboration in swiftly conceptualising, developing, and deploying cutting-edge payment solutions tailored to meet the evolving needs of clients and the broader payments ecosystem. Notably, insights from the banking sector underscore pro-collaboration views, which include gaining access to expertise from third parties, increasing capacity through significant partnerships, implementing solutions cost-effectively, and staying competitive amidst the emergence of new players. Moreover, as Open Banking gains prominence, this trend towards collaboration is further emphasised. This collaborative approach not only accelerates the pace of innovation but also ensures that payment solutions effectively address key priorities. Through fostering collaboration, stakeholders can leverage collective expertise and resources to develop solutions that meet these critical needs while driving forward the evolution of the payments landscape.
4. 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. Through proactive collaboration among industry stakeholders and regulatory bodies, these initiatives promote enhanced security, efficiency, and transparency within the payment ecosystem. 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.
5. Consumer Demand Driving Payment Method Innovation: The report underscores the significant influence of consumer demand on motivating merchants, particularly large retailers, to invest in new payment methods. Insights reveal that factors motivating banks or Third-Party Payment Providers (TPPPs) to implement a new payment system prioritise meeting customers' needs.From bank participant surveys, it strongly emerges that meeting customers' needs is the most significant factor impacting their business case. Therefore, if an objective set out by the regulator does not align with customer needs, banks will prioritise customer-centric objectives in their roadmap.

"Regarding the adoption of new electronic payment methods, the consumer and merchant surveys again reinforce the importance of merchants as key earlier adopters, so as to provide a compelling reason for consumers to choose to use these new payment methods," Glass adds.

Additionally, the report includes qualitative and quantitative insights gathered from surveys conducted among various stakeholders within the payments ecosystem. These stakeholders encompassed representatives from financial institutions, third-party payment processors, technology experts, merchants and consumers. The survey aimed to capture diverse perspectives in a fair manner, providing a comprehensive understanding of the evolving dynamics shaping the industry.

The Modernised Payments in South Africa report serves as a valuable resource for policymakers, financial institutions, and technology providers navigating the changing payments landscape.

“Electrum is committed to driving innovation and modernisation in the payments industry in South Africa. For Electrum, understanding complex financial landscapes drives our commitment to keeping clients ahead," Glass concludes.