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IOT, Instant Payments and the changing South African payments Landscape

Christopher Boxall, Executive Head of Card Transact, FNB South Africa

Christopher Boxall, Executive Head of Card Transact, FNB South Africa

The South African Payment industry is at the precipice of a very exciting era where technological advancements in both purchasing and push payments technology are not only converging into similar customer use cases, but also in enhancing how a customer interacts with the bank’s interfaces and their overall payment experience.

For many years, the simplicity of making an EFT payment to push funds to people’s accounts and using a bank card as a purchase mechanism at a merchant or on an online website, has been the staple approach for most South African users. Cash withdrawals are still the preferred method for many customers who may be sceptical of the banking system or have not fully embraced the digital offerings of South African banks. However, the South African Regulator, banks, and 3rd party processors are now putting their money on these technological advances to quickly close the gap between the cash[1]using “informally banked” customers and the “formally banked” customers who are digitally savvy.

From a purchasing perspective, while some are still coming to grips with trusting a debit or credit card as their payment mechanism, the market is also quickly adopting options such as QR code payments, mobile device payments that emulate a card and make use of contactless technology at merchant till points and the enabling of wearable devices such as watches or rings to act as a card in this contactless environment without needing to ever carry a wallet. Similarly, authentication methods have advanced over time— from what used to be a simple pin entry on point[1]of-sale devices, users are now becoming more accustomed to using phone and wearable authentication mechanisms that rely on proof of life, pattern entry without numbers and biometric verification to reduce fraud. All of these speed up customer experience at the point of purchase and change a merchant’s focus from being on the speed of the purchase to now having to focus their efforts on other processes to expedite checkout lines in the real world.

In the virtual world, e-commerce websites have moved on from users having to continuously enter their card details for every purchase and are now moving closer to a single click checkout process. This is being enabled by the storing of card details on websites using tokenization and removing authentication layers where merchants are confident of minimal return/dispute transactions. In addition to this, e-commerce transactions are slowly merging with real-world transactions where in the world of IOT (Internet of things), many connected devices to the internet such as cards, voice assistant systems and more can now store these tokenized card details and the payment experience itself is now a background activity that is solved for without the customer needing to authenticate, be in the room or sometimes even the same country to effect payment while also ensuring that fraudulent or unauthorized transactions can quickly be detected, investigated and reversed where customers have not explicitly provided their authorization.

" In the virtual world, e-commerce websites have moved on from users having to continuously enter their card details for every purchase and are now moving closer to a single click checkout process " 

Similar strides in the payments environment are taking place where peer-to-peer payment practices of old are now being revamped with more modern-day technology stacks that result in faster processing, API enablement for increased usage of the service and value-added services that can now be layered on top of these new systems. South Africans can imminently expect to not be limited to trying to remember each of their recipient’s account numbers but rather selecting a contact from a phonebook, entering an email address, or even using the camera on their mobile device to capture a card number to speed up the payment process. On top of this, scheduled payments and transfers can now be organized across banks and timed down to the second if necessary.

Much like with all technologies, accompanying these faster processing times and less hardware intensive processing comes reduced per transaction costs which inevitably means lower consumer costs when using these services. Like with all new technologies, there is a downside. Fraud use-cases and practices are very quick to pick up on system inefficiencies or security loopholes with new systems. Instant funds transfer between banks means that tracing of funds that move real time becomes much harder and security for banking interfaces needs to also match the expectations of the customer.

Key stroke tracking technologies and geolocation of customer devices help to mitigate the possibility of fraudulent money transfers but also add friction to the process. Banks and service providers will have to carefully balance security friction and technology on top of an efficient customer checkout process or payment process to ensure that with speed and cost saving comes a safer and more secure payments environment. So whether today’s customer is out jogging on a weekend and needs to stop for a drink without their wallet in hand or needs to send emergency funds to a relative, the South African payment system is growing and enhancing these experiences as quickly as it can, but much like the cash focused customer bases that exist today, the final decision will be made by the consumer and their trust in the system and the new digital opportunities it provides.

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