Compared to other African markets which have high levels of unbanked populations, more than 80% of South Africa’s population has access to a bank account.
However, that access to financial services is largely underused as many people still rely on informal channels and transacting in cash, said PayU Africa CEO Karen Nadasen.
“You have consumers who get paid a salary and immediately withdraw all those funds and then start making payments in cash for goods and services to the point where we have about nine out of 10 retail transactions that still occur in cash, costing the economy billions,” Nadasen told PYMNTS in an interview.
It’s one of the challenges that a newly launched national payment system, PayShap, described by the South African Reserve Bank (SARB) as a “low-value, real-time rapid payment platform,” is aiming to solve.
According to Nadasen, the innovative system which was created in partnership with BankservAfrica will help improve financial inclusion, reduce cash use, and in turn minimize the security threats of dealing with cash.
“The systems that we had prior to PayShap were inefficient or they used screen scraping, whereas this now presents a much bigger opportunity [for the market],” she explained. “It’s real-time [electronic funds transfer (EFT)] and could drive much wider participation in digital payments.”
The service is currently available at about 20 local banks, including the big four — Absa, First National Bank, Nedbank and Standard Bank — with other digital banks like Discovery Bank and TymeBank joining.
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And so far, Nadasen said uptake has been significant, with 50,000 PayShap IDs registered in the first week, and daily transactions amounting to between 1 million to a few million since then.
But as much as PayShap has been hailed as a game-changer for South Africa’s digital payments ecosystem, challenges around the complex pricing structure and fees being more expensive than existing EFT charges pose risks for growth.
“You’ve got fees ranging from 0 rand to 49 rand [$0 to about $2] which is quite drastic and also quite inconsistent,” Nadasen noted of the lack of consensus among financial institutions (FIs) on how much they are charging per transaction.
In comparison, she pointed to free instant payment systems like PIX in Brazil or UPI in India as ones that can serve as an example for South Africa to follow.
“[The no fee policy] is one of the primary reasons why the uptake of those payment systems has been so successful,” she said. “So, hopefully with time there will be a lot of market pressure [in South Africa] to drive these fees down to zero.”
As of today, PayShap functionality is limited to peer-to-peer (P2P) transactions, but over time, it is expected to open up to the broader financial services sector to include FinTechs, creating a collaborative interoperable system that will enable the add-on of other services like remittances to serve consumers beyond the local market.
“We can look at markets like India that are more advanced in account-to-account (A2A) real-time payments, and which now has an integration with PayNow in Singapore to facilitate remittances,” Nadasen noted as an example, adding that “there’s a significant amount of innovation that can come out of this.”
In terms of the opportunities it will create for FinTechs, Nadasen said they will be able to leverage PayShap’s rails to extend lines of credit, for example, driving inclusion and broader participation across the market.
Moreover, as an aggregator with a large merchant network, PayU can also integrate PayShap and immediately offer it to its business clients as one of the available payment options they have at any merchant site, further driving eCommerce growth in the local ecosystem, she added.
Overall, Nadasen acknowledged that there are several challenges to be tackled for the system to rival other global real-time payment schemes, but she said she remains optimistic about its potential to catalyze South Africa’s fast-growing digital payments landscape.
“I believe that if we address the challenges, if we get more banks on board, reduce the fees, improve the user experience (UX) over time, better fraud management — all that is definitely going to increase participation and drive down cash usage,” she said.
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