RISK MANAGEMENT | 13 DECEMBER 2022

Rapid Payments:
Quicker than Cash

Absa-CIB-Author

Richard Stocken

Head of Payment Propositions,
Absa CIB

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An exciting change is shaking up South Africa’s payments landscape, with rapid payments offering a viable digital alternative to cash payments … and providing plenty of room for innovation

As a method of payment, it’s hard to beat the quick and easy convenience of cold, hard cash. It’s flexible and financially inclusive. It’s cheap (a R200 note will cover a R200 payment), and it’s secure in that the seller gets their money straight away. Electronic payments don’t always tick all those boxes.

But, asks Richard Stocken, Head of Payment Propositions at Absa CIB, “What would happen if the cost of a real-time electronic payment came down, and what if it became even easier to make a real-time payment?”

That scenario is currently playing out in the form of the new system of rapid payments.

“We are currently undergoing a significant change in payments in South Africa,” says Stocken. “There’s an increasing demand for instant settlement of value. This is led by a change in consumer expectations, based on their interactions with digital companies – like Uber, Amazon and other businesses – where they settle their commercial transactions immediately. It’s not a separate process, and they don’t have to go into their online banking to make the payment.”

While consumers are driving the change, Stocken says that corporates are now also picking up on the trend, embedding the immediate payment capability into their client experience.

Settling payments

The banking system has various payment types that require a clearing infrastructure between different banks. Rapid payments fall within this system. “For you to make a payment from your Absa account to an account at another bank, the two banks must be able to talk to each other,” says Stocken.

Each payment type is bound by a set of rules. For example, real-time clearing payments must be less than R5 million in value; real-time gross settlement is for payments above R5 million. The different payment types have different risk parameters and cost structures.

A rapid payment represents a new payment type with different technical attributes. “It’s geared towards higher volumes, lower values and lower cost,” explains Stocken. “It has other attributes, like the ability to pay with a proxy (which could be your mobile number instead of your bank account), and it will have a Request to Pay feature, which will be like messaging someone that they owe you money and having them pay you. Importantly, rapid payments will be cheaper than traditional real-time clearing, which we believe is going to drive adoption.”

Cash alternative

Ultimately, Stocken says, we expect rapid payments to replace some of the use of physical cash. “Think of physical cash,” he says. “How quickly can you transfer value? It’s as quick as handing over a note. It’s instantaneous. The transfer of value is immediate. It’s irrevocable, so once I’ve given you my cash you’ve got it and I can’t take it back. I also need to know very little about you. I don’t need to know your bank account number to give you cash, and I don’t need to capture your banking details. I can just hand it to you. It’s unbelievably convenient, it’s immediate and it’s a free transaction.”

But while all of that is true, cash comes with its own limitations. “It’s very expensive for a business to handle cash because it has to bring the cash into its account, which comes with cash deposit fees,” says Stocken. “Rapid payments are electronic, so it removes that cost to the business. There’s also no physical cash handling, which removes the related security concerns. Also – and importantly – rapid payments are very competitive when it comes to remote transactions.”

Cash works for physical, face-to-face, over-the-counter payments. Add geographic distance, and the practical problems are immediately obvious. This is why Stocken says: “The advantage is that while rapid payments are as easy as cash, the two parties don’t have to be in each other’s physical presence. Cash can’t compete with that.”

Space for innovation

Rapid payments make obvious sense for small businesses, but – as Stocken points out – it’s not just SMEs that will benefit. “There are already many use cases for corporates that have very large customer bases,” he says. “Consider those that are selling into the retail market, where transaction values are relatively low.”

Maybe it’s an insurance company, where a policy hasn’t been paid. Rapid payments will make it easier for the customer to pay that amount. A business with a wage-earning workforce might also use rapid payments instead of paying with physical cash or other mechanisms.

“This is an area with huge potential for innovation,” Stocken concludes. “Rapid payments offer a digital alternative to cash payments, and we expect to see businesses innovating around how they take advantage of that.”

Absa-CIB-Author
Richard Stocken

Head of Payment Propositions, Absa CIB

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