South Africa’s financial landscape stands at the edge of a big transformation. By opening up the payments space to non-licensed players, the South African Reserve Bank’s (SARB) Vision 2025 promises to redefine access to the country’s payment systems. This means much greater democratisation of the payments landscape in the next few years. Essentially, the SARB is ushering in an era of open payments with tremendous potential for innovation, competition and financial inclusion in the formal and informal economies – changes that will ultimately benefit South African consumers the most.
SARB’s Vision 2025 and potential impact on payments in South Africa
Vision 2025 represents a significant milestone in the evolution of South Africa’s payments industry. In my more than 30 years in the local banking and payments space, this is one of the most exciting windows of opportunity for greater competition and the formulation of innovative solutions solving consumer-specific needs I’ve seen.
Historically, access to the national payment system was limited to regulated banks, excluding businesses without banking licences from directly engaging in payment services. By opening up these systems, SARB intends to democratise payments, giving retailers, corporates, and fintech startups the chance to embed payment services into their offerings. The shift aligns with international trends that recognise the need for a flexible and inclusive financial sector – one that can adapt to new and emerging consumer demands while still ensuring a secure and stable financial and payments ecosystem the benefit of the economy.
Direct participation will empower non-bank players, including startups and corporates, to offer all kinds of tailored and hugely inventive payment services directly to consumers, transforming all sectors and promoting greater customer choice for mainstream and niche audiences. For businesses and consumers alike, the potential to shape a more dynamic financial environment in South Africa is significant.
Opportunities and implications for the business landscape
All these opportunities for payment innovation in South Africa promise interesting new advantages for South African businesses. Let’s talk about some potential use cases.
Fintech companies and non-banks can leverage payment infrastructure to provide embedded finance solutions, thereby enhancing the customer experience by providing a higher level of convenience and ease of use. This could foster incredible innovation in sectors from retail to logistics. For instance, the fast-moving consumer goods (FMCG) sector could offer innovative instant payment solutions to the informal economy, including South Africa’s estimated 150 000 spaza shops and informal grocers, who serve 80% of the country and are worth an estimated R180 billion.
And, just imagine how South Africa’s supply chain players, who were heavily impacted by the COVID-19 pandemic, could find new avenues for resilience and profitability through solutions such as instant payment on delivery. Real-time payments remove friction, help small and large businesses with cash flow, and remove transaction risks. Changes like these could transform the economy.
For large corporations, the ability to integrate payment services directly into their operations and supply chains could enable new efficiencies and potentially unlock exciting and creative new revenue opportunities.
South African banks can embrace this change strategically, instead of resisting it. This also comes with a realisation that banks were never designed to be technology or fintech enablers. When banks embrace strategic partnerships, greater markets and initiatives open up. Banks can also rest assured that they will always be required to hold deposits. Thus, possible income lost on the transactional fee level can be offset by an increase in their deposit base.
Here’s a practical example to bring this to life: A bank’s corporate client wants to mitigate their operational risk with cash-in-transit. They ask the bank to develop an embedded finance solution, but the bank’s input cost is not worth the output, and the customer’s need cannot be satisfied. So how can the bank make it work? They outsource this development to a Payments-as-a-Service (PaaS) partner to keep input costs low, satisfy their current customer’s needs and gain access to a new customer base via the solution that was built. That’s a win on all fronts.
Consumers stand to gain significantly from the broader, competitive landscape that Vision 2025 facilitates. New entrants to the market will likely drive down transaction costs and introduce tailored services to meet diverse consumer needs. A more competitive payment environment also enhances service efficiency, leading to faster transactions, better customer support, and increased convenience for individuals and businesses alike.
Conclusion: A call to action
As South Africa enters this exciting phase of financial inclusion in the field of payments, we will need unprecedented collaboration between players who might not have played together before, to build a secure, flexible and vibrant payment landscape. New industries and various levels of the economy can now join the national payment system. In the background, banks, fintechs, and regulators must coordinate regulatory adjustments and security standards, ensuring that the expanding ecosystem remains stable, robust and secure.
By supporting secure, compliant access to the national payment system, Banking-as-a-Service (BaaS) and PaaS providers stand ready to connect South Africa to a new era of open payments, fueling economic empowerment, financial inclusion, and sustainable growth. As this evolution unfolds, these industry enablers will play a pivotal role in bridging the gap between traditional financial institutions and the burgeoning fintech and corporate sectors that hope to start innovating in the payments space. New and inexperienced players can join the game without incurring the high costs of developing proprietary financial infrastructure or trying to adhere to compliance rules within the sophisticated and complex payments ecosystem. This is an exciting space to watch over the next two to three years.
The opening up of our national payment system is more than just an opportunity for economic growth. There is a once-in-a-generation opportunity to shape a financial future that works for all South Africans. Let’s seize this opportunity to bridge traditional finance and the future of digital payments, delivering new opportunities to businesses and consumers across all levels of the South African economy.
- Hennie Dreyer is the CEO and founder of www.directtransact.co.za.
