Exclusive: ‘A rapid response’ – Martin Grunewald, BankservAfrica in “The Paytech Magazine”
2021 will be a pivotal year for payments as BankservAfrica introduces a new, API-driven, real-time platform, accessible to every institution and paytech alike. Chief Business Officer Martin Grunewald explains what it hopes to achieve
Southern Africa’s major banks will shortly undergo what could be described as major transplant surgery – a procedure that will boost the region’s cardiovascular system for payments.
The man overseeing the operation is Jan Pilbauer, CEO at BankservAfrica, who previously played a pivotal role in the modernisation of Canada’s core clearing and settlement payments infrastructure. Pilbauer is driving the development of BankservAfrica’s Rapid Payments Platform (RPP), which should go live in the second half of 2021 – the latest piece in an infrastructure jigsaw that BankservAfrica has been building for some time. It already operates the Automated Clearing House (ACH) for South Africa and also provides cross-border interbank clearing and integration into the Southern African Development Community’s (SADC) Real Time Gross Settlement system, allowing efficient processing of high-volume, low-value payments for 15 more countries.
“The real-time nature of the rest of the world has not gone unnoticed in Africa; it’s a journey a lot of people have been on,” says Martin Grunewald, BankservAfrica’s chief business officer. “The challenge in Africa is infrastructure.”
Under its new leadership, BankservAfrica is shaking up the continent’s discombobulated financial ecosystem. The vision is to make BankservAfrica the leading ACH, not just in South Africa and SADAC, but on the entire continent. In a recent interview, Pilbauer said he wanted to ‘build something that is the pride of Africa and shows the world how payments can be done. Failure is not an option’.
Reform is a bold and badly needed ambition. Transferring money simply between banks in South Africa can commonly take up to two days as BankservAfrica, which is predominately owned by FirstRand, Standard Bank, Absa and Nedbank, currently still uses a batch payments system for electronic fund transfer (EFT). And, although South Africa was among the first countries to introduce real-time clearing (RTC) way back in 2006, banks continue to demand a sizeable fee for it as that process is underpinned by a messaging protocol that has been left unchanged for more than two decades.
As a result, RTC transaction volumes only comprise three per cent of total EFT volumes – an obvious anomaly in an age when consumers are increasingly demanding instant everything, and a serious impediment when trying to transition an entire continent away from cash, as has been evidenced during the pandemic. It was those countries with a well-established RTC system that was affordable for consumers to use thatsaw the biggest migration away from notes and coins. But in South Africa, there was significant additional demand for withdrawals from ATMs.
There is another compelling reason why banks throughout the African continent need to get their acts together to provide faster and cheaper, secure digital payments: a real and present danger to their payments’ business presented by alternative payment platforms.
“It’s no longer just competition between the banks,” says Grunewald. “Suddenly, there are other wallets, other facilities coming in to the space.” Mobile money transfer is probably the most significant. Led by M-Pesa in Kenya in 2007, a partnership between network operators Vodafone and Safaricom, there are now almost 300 similar m-money schemes globally, but Africa remains the epicentre with the monthly values of mobile money payments increasing 25 times between 2010 and 2018. Their success has led some African banks to introduce their own m-money transaction services in partnership with telecoms.
They rely on networks of agents to extend the financial inclusion that m-money facilitates, particularly in areas where few bank branches or ATMs exist. Togo-headquartered Ecobank, for example, now has a 44,000-strong agent network across the 33 countries it operates in. And the National Bank of Ethiopia is issuing m-money licences to new entrants as part of a wider package of reforms to encourage non-financial institutions to offer financial services to the unbanked.
But there is still a lot more to do.
Sub-Saharan Africa (SSA) continues to have one of the world’s largest shares of unbanked population with more than half of adults (57 per cent) having no access to accounts in financial institutions nor mobile money accounts, according to the World Bank’s 2017 Global Findex. And that is despite the percentage of adults with mobile money accounts nearly doubling between 2014 and 2017, from 12 per cent to 21 per cent. In a separate report into the economic impact of the COVID-19 pandemic, the World Bank calls for cooperation between SSA countries to drive forward financial inclusion using digital platforms, highlighting the ‘great potential’ for leveraging the scale of mobile phone ownership and internet access. Pilbauer and Grunewald believe the RPP helps them to tick that box.
The modular platform, based on APIs, and microservices, will allow instant, cost-efficient, data-rich, mobile-friendly payments, using a single known thing about the recipient, such as a mobile phone number. In effect, it makes sending payments as simple as sending a text. And that is key. Many digital banking services require a smart phone, but while mobile phone penetration in Africa is high, in a number of regions the majority of devices are not smartphones, but feature phones, so text-based payments are all they can access, not the more sophisticated services offered by banks.
Powered by global IT provider Tata Consultancy Services’ TCS BaNCS for Market Infrastructure, the RPP will be an ultra-high performance, low-latency and scalable solution, according to BankservAfrica. The APIs will be made available to other regulated players so they can host their own versions of it. But, unlike the existing RTC system, fees will have to be very cost-effective if it’s to be a successful ‘direct competitor to cash’, according to Pilbauer.
Grunewald contends that creating an interoperable infrastructure like RPP to provide real-time, cost-effective and secure payments is essential to encourage participation in mainstream banking services, thereby driving up financial inclusion.
“Payments are still too expensive on the continent,” he agrees. “If you look at the example of somebody in South Africa trying to send money home to Zimbabwe, besides all the compliance issues that they might have, it’s sometimes costing in fees 20-25 per cent of what they’re wanting to send. There has got to be better and smarter ways of doing it. That’s where our focus, in terms of BankservAfrica is – in looking at those use cases and reducing the costs. It’s all about having an affordable, interoperable solution. That’s where we’d like to contribute, in creating that infrastructure.”
Customers in control
One of the challenges in providing a real-time solution is monitoring the payment journey in real-time and identifying problems swiftly. BankservAfrica processes 9.5 billion transactions annually using SWIFT gpi tracking for larger interbank and cross-border transfers, while also employing data tracking software developed by Intix to follow payment journeys inside the bank. Together, they have taken traceability to a whole new level, says Grunewald, allowing transactions to be monitored in real-time, providing additional security, problem-solving and information.
“It helps in two ways. One obvious one is around customer service – you don’t want transactions going missing and you want to monitor that nothing’s going wrong; people aren’t inserting fictitious transactions, there isn’t fraud, etc. So, there are a number of advantages around just creating that visibility,” he says.
“But we’re also really excited that, for instance, in our SWIFT bureau environment, customers can sit on their iPads, monitoring transactions themselves. That’s a great step forward. If you were to ask me what my wish list is in the future, I’d love all our clients to be able to sit on the iPad and literally watch our transaction flow.”
That all transactions, large and small, are digital is, of course, the ultimate goal of governments looking to use demonetisation to curb corruption. India introduced its Universal Payments Interface (UPI) in 2016 to do just that, incidentally also using Tata’s TCS technology. Thailand’s Promptpay enables its 43 million users to make and receive payments into their bank accounts or into digital wallets linked to their national ID, mobile phone numbers, or email addresses.
The scale of change required in Africa, though, is huge with an estimated nine out of 10 transactions still in cash – many people use mobile money services simply to ‘cash out’ the funds when they hit their accounts. But that reliance on cash comes at a significant cost with users suffering fees, missing out on interest, having to travel to find agents, ATMs or banks and exposing themselves to the evident risks associated with carrying and storing cash.
Despite BankservAfrica’s best efforts with the RPP, it doesn’t expect South Africa and many African countries to become cashless societies overnight – if, indeed, they ever entirely give it up. But what the RPP will do is help the payments industry pump with a little more vigour – responding to the pressure from alternative payment providers, but also recognising that bank customers deserve a better experience. In doing so, it will address concerns about lack of interoperability between payment systems and thereby encourage more participation in mainstream banking services among Africa’s 1.2 billion people.