South Africa: Rapid payments to ease the risks of cash for the poor

By David Whitehouse
Posted on Monday, 4 October 2021 14:58

People queue for social grant payments at a post office in Port Elizabeth, South Africa, 13 Nov 2020. (AP Photo/Theo Jeptha)

South Africa’s planned Rapid Payments Programme can reduce the risks to the poor of carrying cash, Ghita Erling, CEO of the South Africa Payments Association, tells The Africa Report.

The widespread practice of South Africans drawing out whole monthly benefit payments or salaries in one go creates a risk of theft, Erling says in Johannesburg. “Cash carries a cost for the poor. People underestimate that cost.”

The rapid payments system is being developed by the association along with Africa’s largest clearing house BankServAfrica. The aim is to create competition between cash and digital payments, Erling says. The system will make it possible to send money to a mobile phone or an email address in real-time without knowing the recipient’s banking details.

Erling says one reason why people draw out all the cash at once is because of the time and cost of doing so. She points to instances of elderly people queuing up for hours in the middle of a pandemic to get cash as a sign that the current system is “very dated.”

People also fear that cash balances will be eroded by fees if left in the bank, with low levels of financial literacy also being part of the problem, she adds.

  • Banks will start testing functionality around the end of this year and the first live transactions are likely to take place in the second quarter of 2022, she says.
  • The fact that the system will run on an Application Programming Interface (API) based platform will make it more flexible than a traditional interbank system, and it will be easier to add more functionality later, she adds.

Data costs

Erling anticipates that the new system will reduce entry costs for challengers in South Africa’s banking market.  She also expects that legal changes in South Africa will make it possible for new entrants such as fintechs to access the core payments system, currently the preserve of the banks.

In the coming years, she says, access to core payments will be based on a company’s activity rather than its corporate classification. “That is where we are going.”

The payments system will be a “necessary but not sufficient” condition to make digital payments more competitive, Erling says.

High data costs remain an obstacle which remains to be overcome, as does the need to improve financial literacy, she says. “There is real value in education for digital payments.”

Digital payments may cut the risk of physical theft, but they also increase the risks of cyber-crime. Figures published last week by the South African Banking Risk Information Centre show that digital banking fraud increased by 33% in 2020, with contact crime dropping due to pandemic restrictions on movement.

  • “There is no question that account-based fraud has dramatically increased,” Erling says.
  • The system will start off with a low volume of transactions until it’s clear that it is completely secure. “We won’t allow significant volumes” without being convinced.

Even though eliminating cybercrime may be impossible, Erling argues that digital payments, provided they are not in cryptocurrency, give a better chance than cash of tracing the criminals. Cyber thieves need to get the money out of the system as quickly as possible, she says, but they will leave traces behind. “If it is in the banking system, the odds are very good that we can track it down.”

Bottom line

South Africa’s payments association sees poor cash users as the main beneficiaries of digital payments.

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