This week, the South African Reserve Bank (SARB) announced the launch of PayShap, a real-time rapid payment platform that is aimed at offering safer, faster and significantly more convenient payment options for South Africans.
PayShap is the outcome of an industry-spanning collaboration, driven by BankservAfrica, the Payments Association of South Africa and the South African banking community, with the aim of modernizing the national payments industry. It is rooted in the SARB's Rapid Payments Program, as part of its Vision 2025 strategy to reform the South African national payment system framework.
The SARB has noted that PayShap will ultimately offer a cost-effective, instant payment service across banks, a proxy service to embed user banking details, a request to pay service, as well as support for several known retail payment use cases. The service also addresses gaps in the interoperability of banking payment systems by implementing a Transactions Cleared on an Immediate Basis payments platform.
One of the more tangible benefits for day-to-day users will be the reduction in information that will be required for payments. In its initial phase, PayShap users will be able to access its real-time payment feature in order to pay recipients instantly, using either their banking details or by proxy via a unique identifier called a ShapID. A person's ShapID could, for example, be a mobile phone number, or a bank-generated identification number, used as a proxy for their full banking details. These IDs are far easier to share and use than, for example, the cumbersome details needed for electronic funds transfers, which still require manual inputs of information such as branch codes, and the payee's name and account details.
Given that PayShap is a sector-wide project, it is also far more accessible to a wider range of South African customers, where speed in electronic payments has typically only been available to credit card holders, users of payment solution providers or open banking providers, for example. PayShap also aims to reduce the use of cash for small transactions, an important step in an economy such as South Africa's. Recent estimates in a 2020 Worldpay Global Payments Report indicate that over half of global payments are still cash based, and in the informal economy this shoots up to almost 90%. At launch, it has been stated that PayShap will process real-time clearance of low-value transactions to a maximum value of ZAR 3 000.
The next phase of the service will see the launch of a request-to-pay function, which will allow users to initiate a request for payment and then securely receive funds almost instantly into their bank account. PayShap uses a 'push payment system' rather than a 'debit-pull', meaning that the payment recipient in the system will maintain control of receiving the payment, making transactions safer and more secure. Payments will be processed by BankservAfrica, which is primarily an automated clearing house. The service will be cheaper than the usual banking transactions.
The implementation of PayShap will also improve adherence to global best practices for financial communication. Last year, the SARB, participating banks and other financial markets infrastructures adopted the International Organization for Standardization financial messaging standard (ISO 20022) for high-value payments in the domestic market, and the PayShap platform is fully ISO 20022 compliant. ISO 20022 financial messaging provides structured and data-rich communications that are more readily exchanged among corporates and banking systems. By 2025, most major reserve currencies will have moved to ISO 20022 as it becomes the de facto messaging standard for these types of transactions. Being part of this global harmonization will bolster South Africa's ability to participate in this wider ecosystem as it emerges.
The introduction of the PayShap platform comes at an exciting time in the South African payments industry, which has become one of the largest sub-segments of the fintech industry on the African continent. This development signals a progressive approach by local policymakers, together with the industry, and will hopefully lead to more dynamism in the sector, and wider access to the country's fintech products and investment opportunities, whilst keeping in step with the growing demands of international standards. It is also, however, a potential disruptor in the fintech sector, where some successful fintech ventures have built their payment products in the gaps of the traditional banking digital payments infrastructure. It remains to be seen whether the introduction of PayShap will influence any consolidation of players in an already saturated payments industry, and how this development may reshape or enhance some of the South African payments business models going forward.
Written by Ashlin Perumall, Partner, Baker McKenzie Johannesburg
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