The rise of real-time payments in Africa

 Karen Nadasen, CEO, PayU Africa

 

Real-time payments, in other words payments made at any time between bank accounts that are initiated, cleared and settled within seconds, have become increasingly important in Africa as the continent’s economy continues to grow rapidly. Instant settlement has begun to revolutionise the continent’s financial landscape by driving business growth and financial inclusion.

However, there are still legacy challenges that need to be addressed as Africa continues to struggle with the proliferation of slow and inefficient payment methods. Traditional payment methods, such as cash and cheques, remain the most commonly used modes of paying across most countries of the continent, which usually result in long wait times for settlement and high transaction costs.

Real-time payment methods are growing in popularity globally due to their convenience, speed and security. Three prominent real-time payment methods that have gained traction are Pix, Blik and UPI. Brazilian platform Pix can be used through mobile banking apps, internet banking, ATMs or directly at the point of sale, and has gained popularity with 119 million Brazilians using the payment method in August 2022. 2022 was also a breakthrough year for Polish instant payments platform Blik, with nearly 13 million active users. UPI, the Indian real-time payment system which allows users to link their bank accounts to payment apps such as Google Pay and Paytm, has become a ubiquitous payment method in India, with approximately 260 million users.

In Africa, where the majority of the population remains unbanked (57%), electronic payments and mobile money have become widely used alternatives to traditional banking. Indeed, one of the main drivers of real-time payments in Africa is the rapid growth in consumer adoption of mobile technology. With the widespread availability of smartphones and mobile internet – especially when compared to the lack of access to traditional banking services – consumers have been drawn to mobile payment services that allow them to send and receive money instantly. So much so, that Africa’s domestic e-payments market expects to see revenues grow by approximately 20% per year, reaching a value of approximately $40 billion by 2025.

 

How South Africa is leading the way in digital payment transformation

South African Reserve Bank (SARB) and Bankserv Africa have launched PayShap, a digital payment method based on a real-time payment scheme which is helping to digitalise the South African financial system, encourage economic growth and build digital ecosystems within communities.

Payments via PayShap are accessed through mobile and internet banking which provides an instant digital alternative to cash. South African banks are promoting decreased dependency on cash in order to streamline their operations and reduce costs. This is because cash management is expensive for banks due to the operational costs associated including cash handling, transportation, storage and security measures.

South Africa has a high number of banked people (84%), but they have a reliance on cash. By promoting digital transactions like PayShap and reducing the reliance on cash, banks can extend their financial services to these underserved communities.

The widespread adoption of smartphones in Africa have made digital transactions more accessible. The number of smartphone connections in Africa reached 302 million in 2018; which is predicted to rise to nearly 700 million by 2025 at an adoption rate of 66%. South African banks are adapting to changing consumer preferences and providing the technology that is needed for those previously excluded to gain access to financial services.

 

What are the issues?

One of the main challenges of real-time payments and settlements is the risk of the fraud and cybercrime. As these payment methods are instantaneous, this leaves little time for thorough fraud detection and prevention. Hackers and cybercriminals can identify vulnerabilities with the payment system and exploit them, stealing funds and personal information. To overcome these challenges, merchants and payment providers must make sure they deploy security tools that are specifically designed to identify and prevent fraud in real-time.

Another challenge is the need for interoperability amongst payment systems. Different payment systems may use different protocols, formats, and standards, making it difficult for them to communicate and exchange data seamlessly. This can lead to delays, errors, and additional costs, which can ultimately undermine the benefits of real-time payments. Real-time payments and settlements must be able to integrate seamlessly with other payment systems. Financial institutions and payment processors can do this if they establish common standards that enable seamless communication between different payment systems. This can be achieved through collaboration between the different participants in the payment system, including banks, regulators, and technology providers.

 

The bottom line

Real-time payments and settlements are transforming Africa’s financial landscape. They are opening up new avenues for transactions which in turn are driving greater economic growth, financial inclusion and innovation. Real-time payments and settlements are a lifeline in rural areas, where access to traditional banking services is even more limited. The introduction of real-time payments has been essential in making financial services more accessible, which has in turn supported GDP growth across the continent.

However, real-time payments and settlements are not without their own set of challenges, and there are issues with fraud and interoperability. These challenges must be addressed in order to ensure that these revolutionary systems are accessible and secure.

Financial institutions should consider deploying adequate fraud prevention to safeguard consumers against fraud, which is even more prevalent amongst payment methods that are especially rapid. They must also establish common standards and procedures. By doing so, a financial system that is speeder, efficient and inclusive of all Africans can be created.

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