By Dominic Preuss
PayShap launched on 13 March, in collaboration with the South African Reserve Bank and developed with BankServAfrica as an intermediary of a new modernised real-time payment rail that facilitates the movement of funds between participating Payshap financial institutions. By Dominic Preuss
It is essentially another means by which payments are processed and settled between the sender and the recipient, like EFT, PayPal, card payments or handing over cash.
However, the new system is a true instantaneous real-time transaction facility using cellphone numbers proxy ID (representative ID) rather than a bank account number, thus improving customer safety.
Cellphone numbers are linked to nominated bank accounts, money can then be transferred through an overlay function where cellphone numbers are used for transactions - no need to swap bank details. As long as both cellphone numbers are linked to PayShap the funds will be almost instantaneously transferred between accounts.
“It aims to help eliminate the need for cash to pay smaller businesses, or to exchange funds with friends or family members,” says Charl Smedley, Managing Executive: Payments, Absa Everyday Banking.
Banking penetration in South Africa is comparatively high says Smedley, linking bank accounts with PayShap is an alternative to withdrawing and carrying cash around rather cellphones becoming your digital wallet. Bank accounts with PayShap are an alternative to withdrawing and carrying cash around rather cellphones become your digital wallet.
While PayShap transactions are limited to a maximum of R3 000, the daily payment limit defaults to the limit set by the consumer. It is estimated that just over 70% of total industry electronic funds transfers volumes made are for less than R3 000, therefore the limits will be adequate for most customers.
The four participating banks – FNB, Absa, Nedbank and Standard Bank – have come out with fee structures that range from free for transactions under R100, to R45 for transactions over R1 000, while transactions from R200 to R1 000 attract fees between R6 and R7,50 from most banks.
At current fee structures, PayShap will sit between traditional days-long EFT transfer - started in 1972 - and real-time clearing (RTC) - introduced in 2006.
While most banks already have a money-send or eWallet facility for the same bank customers. The PayShap platform will facilitate the transfer of funds between different participating banks with the account that has ShapID registration.
By July, it will be rolled out to Capitec, TymeBank, Investec and Discovery Bank.
PayShap can only be used by someone with a South African bank account. A customer needs to go on to their banking app and register a ShapID using their cellphone number. Customers who do not have a smartphone will be able to register via US dollars.
“There will still be use cases for cash,” says Smedley “however the user-case might change as South Africa continues to develop its economy.” It is estimated that still 9 out of 10 transactions in the country are still made in cash and around 25% of the population when they get money in their bank accounts, will typically withdraw it all.
Many lower-income earners use cash as their main form of payment to vendors, landlords and taxis, who mostly only accept cash. Over time, with the adoption of PayShap, the use of cash could be reduced, which is safer for individuals and a lot more cost-effective for banks.
PayShap might make a dent in cash transactions but will probably more likely impact the continued use of RTC as a digital alternative for instant transfers. BankServAfrica anticipates that by the end of this year, Payshap will be SA's most preferred electronic payment option.
“RTC allows for transactions of up to R5 million. PayShap needs time to mature. These payment systems will co-exist for a while, but over time all new innovations will happen using the PayShap rail, so it will naturally replace RTC” explains Mpho Sidaki, head of real-time payments at BankServAfrica.
“Future functionality to be launched later part of the year is a request to pay service” explains Smedley. A digital invoice can be sent between digital channels, including mobile devices initiated by the collector of the funds. The recipient can accept or deny the request, completing or terminating the transition respectively.
“The hope is that SMMEs and street vendors can adopt the PayShap system negating the need for payment terminals, cash handling and deposit fees,” says Smedley.
“Digitisation has significantly improved the payment experience and made it much easier to pay or get paid. Bank notifications help both parties be sure that the payment is made and that the money they have received is legitimate. The PayShap transaction happens in real-time, and it is safer than carrying cash, which could be lost or stolen. The digitisation of payments will help reduce cash on hand significantly,“ says Sashin Sookroo, Head of Payments, FNB Personal and Private Core Banking.
PayShap will however be an irrevocably instant payment system so any misuse or mistakes will not be reversible. Unlike EFT, which logs all transactions during the day and processes them in a batch at the end of the day.
A future with a fully digital currency still has its detractors, as trends in Chain along currency digitisation have highlighted the potential for abuse by an authoritarian government to curtail and control its citizens' spending ability. Notably, bank accounts are connected to a social credit system.
Dominic Preuss is an Engineering Technologist at Amore Hydro.
BUSINESS REPORT