By Akiva Ehrlich is Deloitte Director: Risk Advisory Africa and Payments Leader
The emergence of COVID-19 has made the need for digitising payments more critical than ever before and for this to be a success, electronic payments need to offer similar benefits to those afforded by cash. Globally, economies are in various stages of development having either started developing, replaced or are busy replacing daily batch payment systems with real-time systems that execute payments in seconds with the flexibility to meet the needs of the future digital economy.
The drive towards digital payments and lowering the reliance on cash is not new to South Africa’s payments market. There are several mechanisms already in place to enable this and banks, card companies, fintechs and retailers are all involved in rolling out digital, non-touch payment mechanisms.
Contactless cards use near field communication (NFC) to transmit payment messages to the Point of Sale device and obviate the need to insert, swipe or to key in the PIN code. They are limited to low value payments. Where the payment transaction exceeds a transaction limit (typically R500), the PIN code is still requested by the merchant. It must be noted that the issuing bank could decide to lower this limit if they wanted for security reasons.
Banks and retailers around the world are responding to COVID-19 fears by raising the limits on their contactless card transactions so that higher value payments can be made without the need to touch the terminal. On 1 April, the UK increased the per-transaction limit from GBP30 to GBP45, while on 2 April, leading retailers in Australia increased their contactless limit to $200, all in a bid to reduce the need for pin entry on point of sale devices.
We have seen an increased uptake by both large and small retailers of the QR code, which uses an app on your mobile phone to scan a QR code at the merchant. This also ensures that no physical contact is needed and has high customer convenience.
It has been a while since tellers at merchants stopped touching payment cards, mainly due to fraud concerns, but it is now becoming even more common practice due to the risk of spreading COVID-19 through cards.
Achieving financial inclusion through contactless payments
Financial inclusion is one of the key principles of the South African Reserve Bank’s “Vision 2025”, and an important drive in South Africa. While most South Africans do have a bank account and card (80%), there is still a very high reliance on cash with many having limited access to other financial products such as credit and insurance.
Approximately 90% of shops in the informal sector run entirely on cash, despite interest from their customer base to pay with their card. This issue is mainly due to card acceptance challenges at the SME merchants and in rural areas. A widespread rollout of Point of Sale (POS) devices across the informal sector would be necessary to enable card acceptance.
New entrants in the POS market are increasingly providing devices linked to mobile phones priced more favourably for the smaller business market. As these continue to roll out, the opportunity to see wider use of card payments will increase countrywide. In addition, new entrants are offering micro transaction platforms (using QR codes) which allow for both the making and receipt of low value payments in a contactless way. This certainly supports financial inclusion.
We are seeing the entrance of new banks, sometimes called challenger banks, who offer their services digitally. SA is no exception. Digital banks don’t invest in branch infrastructure and as a result are able to reduce their costs and aim to offer their services at a lower cost than their traditional competitors. In South Africa, we have a new digital bank which is clearly focused on financial inclusion. Apart from offering a digital service they have also set up retailer partnerships to reach their customers, deploying kiosks country wide.
Regulations to assist in mitigating against financial fraud
Payment systems play a vital role as a foundation for deepening financial inclusion by providing access and effective use of formal financial products and services for all Africans. This is key to ensure secure and safe payments.
Biometrics stored in a central location, providing the customer with a digital ID, are the perfect solution to providing an enjoyable customer experience with a high level of security. Implementing a central digital ID within the African context is not a simple task and poses challenges, such as working with specialised infrastructure that is not optimal, dealing with unreliable connectivity, managing hardware malfunctions and addressing ID duplications. High incidences of fraud and lack of trust were raised as key impediments to the adoption of electronic payments, which drive the call for more regulatory and enforcement efforts.
There are also key aspects that need to be addressed, such as access and exposure to the protection of personal information, the management of data breaches, compulsory versus voluntary participation and the inclusion of foreign nationals residing in another country.
If the various industry players continue to move towards greater interoperability, the end result must be an increase in payment offerings which answer to customer needs with greater effect and address the concerns around minimizing contact during the period of COVID-19 and beyond. This in turn will have the benefit of improving the customer experience, increasing adoption of digital payments and reducing cash dependency and contact, ultimately leading to improved financial access across the continent.
