Plan to take on South Africa’s big banks By Daniel Puchert

Digital transaction fees remain high in South Africa due to the lack of a free market in the country’s payment system, which is dictated by the banking industry.

This is according to the founding members of the Association for South African Payment Providers (Asapp), who have teamed up to reduce the cost of digital payments in South Africa.

To do so, the group, consisting of eight of South Africa’s largest non-bank financial companies, including Yoco, iKhoka, and Network International, seeks to participate directly in the national payment system.

By gaining access to payment rails, promoting competition, and working towards interoperability, Asapp believes it can drive costs down and benefit the greater economy, given how the country’s dependence on cash hinders economic growth.

Convincing South Africans to move away from cash is not about enabling them to sign up for a bank account; it’s about providing them with an affordable alternative, said Lesaka Technologies chairperson Ali Mazanderani.

“The SARB’s report issued in 2024 showed that over 90% of consumers and SMMEs still use cash, and the cost to society is high, as cash comes with many hidden costs,” Mazanderani said during a panel at the Asapp launch.

He is referring to the South African Reserve Bank’s Payments Study Report for 2023.

“And when we look at financial inclusion as an objective, people think it’s a chicken or an egg problem. The country has an almost entirely banked population, with almost 90% of South Africans having an account.”

Mazanderani added that the same report noted that 50% of South Africans withdraw the entirety of whatever money is put into their accounts.

“So there is no confusion as to what the issue is. We have been trying to solve the problem at the merchant.”

However, solving this problem, which would make the South African payment landscape more inclusive, requires companies that facilitate transactions to have access to payment rails.

This is the infrastructure that allows the transfer of funds between parties.

“The payment ecosystem is a closed-loop system, and banks dictate the payment rails,” Altron FinTech managing director Johann Gellatly said.

This has a significant impact on interoperability and innovations within the payment system.

A panel discussion between representatives of four of Asapp’s eight members. From left: Nozipho Thsabalala (moderator), Mpho Sadiki (Network International), Johan Gellatly (Altron FinTech), Moosa Manjra (Hello Group), Rahul Jain (Peach Payments).

Network International’s Africa group director, Mpho Sadiki, noted that South Africa has seen numerous developments in the fintech landscape over the past few years.

However, many of these have been sidelined because of a lack of mainstream interoperability.

PayShap is one development that has overcome this issue. However, Asapp members don’t feel it is doing enough for the industry.

Gellatly mentioned how PayShap is one of only two transaction platform developments, the other being DebiCheck, that have been introduced to South Africa’s payment system in the past 30 years.

While PayShap is a significant step forward for South Africa’s payment industry, according to Peach Payments CEO Rahul Jain, adoption levels have not met expectations.

“Let’s face the brutal fact that PayShap has not been well adopted in the market. But this is because inherent conflicts of interest are built into the current models,” Jain argued.

“On the one hand, you have access. If you look at the model, you have banks that are gatekeepers to the PayShap ecosystem. However, they also face the dilemma of protecting income generated from traditional rails, such as swipe fees.”

Jain provided the example of a R3,000 PayShap transaction he had recently made with a tier-one bank that cost him R20 in fees.

“With these types of hurdles in place, you are not going to see the adoption you are looking for,” he continued.

However, he argues that if there were a free market for payments, transaction fees would decrease, and merchants would be more willing to adopt these technologies at their point of sale.

source:Plan to take on South Africa’s big banks – MyBroadband