The trend towards digitisation in the payments world was supercharged in the past year as the pandemic saw customers reach for digital solutions in far greater numbers than ever before. For financial institutions in Africa, it is vital to stay on top of this demand.
The global payment business landscape has undergone unprecedented change in the past year. A move to digitisation that was already underway was rapidly accelerated by the onset of the Covid-19 pandemic in 2020. Digital innovation today is totally reshaping the way that financial institutions are providing services and doing business. The pandemic has also reinforced the importance of digital payments for ensuring safe and convenient payments, both on a domestic level and globally.
The pandemic effect
Speaking at the recent SWIFT event 'Towards instant, frictionless payments: Focus on Africa', Ismaël Ahmed M. Saker, Deputy Director Payment Systems at the Bank of Central African States (BEAC) said that the pandemic has had a great impact on the industry and it has set the impetus for regulators to progress with digital transformation. For example, to encourage the adoption of digital payments the BEAC has worked with market participants to reduce the fees associated with such payments.
"The pandemic has accelerated digital payments - including contactless payments," commented Sadiya Hossen, Head of Strategic Projects at MCB Limited. "The value of digital payments - including mobile payments - in the region has increased by as much as 500%.”
Keeping up to speed with a changing payments landscape
"The key word for the payments business in Africa is change," commented Louise Mostert, Senior Country Manager, South Africa at SWIFT. One of the main drivers for this change has been the growing expectation of customers for a seamless payments experience. This has been propelled by increased access to mobile phones and e-commerce.
"The functionality and features of retail payments - the need for cheap, immediate and transparent payments - is now being demanded by companies, along with a demand for richer data," noted Bernard Carless, SWIFT Board Member and Head of Settlement at FirstRand Group Treasury. "Corporates have a need for services and solutions rather than just products, such as real-time checking and mutualised services."
Corporates have a need for services and solutions rather than just products, such as real-time checking and mutualised services.
With the rapid pace of change highlighting what is possible in payments, continuing areas of friction, particularly in cross-border payments, are a real cause for concern. From multi-currency challenges, to regulatory issues and sanctions screening, through to a lack of interoperability with domestic systems and rich data, the challenge of removing friction from cross-border payments is substantial. However, as Mostert pointed out, SWIFT has announced an ambitious strategy to address these challenges and to make sure that the community can go forward with frictionless payments.
"The SWIFT strategy is very exciting and effectively involves the move to providing instant frictionless payments, account to account, anywhere in the world," said Carless. "It's being built on the proven foundations of gpi, and will involve the transformation of SWIFT platform from the current sequential messaging to a holistic transaction management process. We will see the creation of mutualised services, which are currently procured by institutions separately, covering things like sanction screening, payments controls, and translation services, for example. Through the realisation of the strategy we will see an evolution of the current SWIFT platform to a transaction management platform, which will enable the delivery of instant and frictionless transactions."
SWIFT strategy: Our vision for instant, frictionless payments and securities
Customer insights on payments digitisation
While the 2017 Global Findex Database revealed that 69% of adults globally have a bank account, the number was far lower in Sub-Saharan Africa (38%). While that number for the region saw a modest 4% increase between 2014 and 2017, the share of the total population with a mobile money account almost doubled, to 21%.
"Digitalisation of financial services is growing at an exponential rate in Africa," commented Didimas Makhubela, Business Development Manager, Southern Africa at SWIFT. "Digital and mobile technology is constantly evolving and advancing, we're seeing more and more ways to pay, to store value and transfer value from mobile wallets, to peer to peer, and digital currencies."
Digital and mobile technology is constantly evolving and advancing, we're seeing more and more ways to pay, to store value and transfer value from mobile wallets, to peer to peer, and digital currencies.
Of course, this past year around the world has been like no other, with the Covid-19 pandemic impacting every area of people's lives, and forcing businesses and financial institutions to find new ways to cope and to do business. In Africa, the industry faced these challenges, but also saw opportunities.
"The pandemic brought technology to the fore," said Miriam Kamuhuza, Acting Director, Payment Systems at the Bank of Zambia. It tested organisational resilience and the financial sector as a whole. Bank of Zambia engaged with its stakeholders as soon as the pandemic hit. We put in place a stimulus package to help the financial sector. We promoted the use of digital services to reduce person-to-person contact and the need to go into bank branches, for example. We ensured fees were waived for certain users, and looked at the limits in place on digital payments. We increased digital wallet limits and balance limits so that we could accommodate the many merchants that were migrating to the digital platforms. The number of active mobile money accounts actually leapt 77% last year in Zambia."
Aside from the pandemic, steps are being taken in Africa to promote a level of regionalisation of financial markets, trade and payments. One example of this can be seen in the SADC Banking Association, which has 16 member states in Sub-Saharan Africa.
"The SADC secretariat set out an agenda to benefit all 16 member states many years ago," explained Maxine Hlaba, Executive Secretariat, SADC Banking Association. "Out of this came the regional SADC-RTGS payment platform, owned by all the central banks of SADC. This went live in 2013 and aims to promote cross-border payments in the SADC area. This definitely does promote trade - since inception, we have processed approximately 8.25 trillion rand over the RTGS, which is just over 2 million transactions that have been settled so far. It's a multi-currency platform, and we should in the near future see different currencies on the platform which would further enable growth."
The collaboration that has driven the success of the SADC platform was one of the key themes of the event, something that was also highlighted by a commercial banker on the panel.
"One bank doesn't make a payment system - you have to collaborate with other banks, and particularly with the central bank to understand what they require from you in every country you are in," commented Jeandre Engelbrecht, Product Owner: Settlement and Liquidity Management at Standard Bank. "We also have to understand what the regional requirements are and to lay down the infrastructure required to actually perform those transactions as seamlessly as possible."
Customer insights: The future of payments in an ever evolving digital landscape
The need for a standardised environment for payments systems, to ensure interoperability and remove friction from transactions, is key for banks to keep up with customer expectations.
"If there's no standard, then it's not interoperable," said Engelbrecht. "Specifically with the SADC RTGS, we used SWIFT as a platform to allow us to do these transactions. With ISO 20022 representing the near future of payment standards, as seen with it's key role in SWIFT's new strategy and platform, the panel was optimistic about the benefits that the standard can bring to the payments world.
ISO 20022 will provide an opportunity for us to get better and richer data. It will enhance our abilities, it will enhance our strategies, and we will have more data that we can work with, as an industry and also as regulators.
"ISO 20022 will provide an opportunity for us to get better and richer data," said Kamuhuza. "Let's take advantage of what this message standard is capable of doing, beyond what we currently do. It will enhance our abilities, it will enhance our strategies, and we will have more data that we can work with, as an industry and also as regulators."
MCB Limited's Hossen emphasised that the collaboration among all market players, together with standards, will be key to building an open ecosystem and meet evolving customer demands. This was echoed by BEAC's Saker, who noted that interoperability will play an essential part in the continued transformation of payments.