By Junaid Dadan
South Africa’s payments ecosystem has seen a significant evolution, particularly over the past 3-5 years.
As consumer expectations have become more demanding and use of digital payments has grown, there is a race among payments providers and merchants to offer better, faster and more innovative payment methods.
Just a few years ago, the only way for South Africans to pay digitally was via card or manual bank transfer.
The latter of which is executed by logging into a banking app or portal, entering recipient details and initiating a transfer – which can be cumbersome and prone to fraud.
On the other hand, while more convenient, businesses that only accepted card left a significant part of the population unserved.
A large part of the rising demand coming from South African consumers has been a desire for easier, faster and more secure ways to pay.
As the open banking wave has swept other global markets, it has also taken hold in South Africa, pushing the payments landscape toward a more sophisticated Pay by Bank offering that can better meet those demands.
Instant EFT was one of the first innovations developed and offered by third party payment providers to enable fast and affordable payments directly from a consumer’s bank account to that of a merchant.
It was designed to enable consumers to initiate transfers from their bank accounts without leaving the merchant’s app or site, and at a lower cost to the merchant than card payments.
Banks were initially skeptical about the need for and benefits of Instant EFT, but this has since changed.
Now, individual banks are working to launch their own versions of direct bank to bank transfers via API, which can provide a similar experience to that of Instant EFT.
This will usher in the next phase of Pay by Bank in the South African market.
What’s next for bank to bank payments in South Africa?
Today, Pay by Bank is the fastest-growing payment method in the country, and it encompasses more than Instant EFT payments.
Capitec Pay and similar offerings currently in development from other major banks, along with PayShap, will shape the future of bank to bank payments.
I believe we’ll see Instant EFT begin to phase out in place of these direct offerings from banks.
However, because Pay by Bank APIs in South Africa are a market-driven initiative rather than a response to regulation (e.g. PSD2 in Europe), the rollout of these APIs is complex.
There is no agreed standard amongst banks for the functionality and business rules around this. For example, timelines to make these APIs available are solely at the discretion of each bank, and as a result, they are uncertain.
Access to the APIs is also at the discretion of each bank, and not all merchants qualify.
For these reasons, it’s likely that Instant EFT and the equivalent bank APIs will live side by side for some time.
Even once every bank in South Africa offers a Pay by Bank API, however, accessing and managing multiple integrations will continue to be complex.
Separate and bespoke technical integrations are required for every bank, multiple commercial agreements are needed and the compliance burden of supporting these methods is high.
Payment gateways like Stitch are now even more critical to enable access to and management of all Pay by Bank methods, as well as card, manual transfers and debit orders, through a single integration.
This will allow businesses to better meet the expectations of consumers and offer access to all Pay by Bank solutions while reducing the complexities of managing and reconciling payments across methods and banks.