How South African enterprises can future-proof their payments infrastructure

The payments landscape in South Africa has changed at a rapid pace in the last few years. From the introduction of the first bank-to-bank APIs, to the growth in contactless payments, to the continued dominance of e-commerce and more, the landscape continues to evolve.

The pace of change isn’t expected to slow down anytime soon. In South Africa and beyond, adoption of electronic payments, rapidly developing payments infrastructure and harder-to-predict trends such as open banking and cryptocurrencies will only continue to evolve from here.

Any enterprise that handles payments will need to be prepared to adapt in the coming years or risk getting left behind as competition continues to intensify.

Here, we look at the dominant trends in payments and what South African enterprises can do to make sure they’re prepared for what’s coming next.

Trends in South Africa: the lay of the land

To summarise South Africa’s payment landscape in a sentence, one might say: the infrastructure has expanded quickly, and behaviour is still catching up.

This means a few things: firstly, the changes brought about in a relatively short time have been incredible. In 2011, just 54% of individuals over 15 had a bank account. This rose to 84% by 2021. However, despite this rise, South Africa remains a cash-heavy economy. So even though people have begun their journey towards adopting different payment methods, the behaviour of the majority has yet to catch up.

However, this is beginning to change. Research from Mordor Intelligence found that cash transactions in retail in South Africa fell 19 percentage points between 2017 and 2021, now accounting for 38%. The ecosystem is in a state of flux.

As a base case, we can expect to see further growth in electronic payments. In fact, McKinsey’s report on the future of payments in Africa predicted growing adoption of e-payments due to a number of tailwinds such as the continent’s young demographics, economic growth, technological innovation and expanding payments infrastructure.

Beyond that, though, the future becomes harder to predict. It’s reasonable to expect that the Pan-African Payment Settlement System will launch in South Africa eventually, and the South African Reserve Bank’s (SARB) pilots with Central Bank Digital Currencies could offer a way to bring digital payments to the offline parts of the economy.

The most illustrative example of how quickly things could change may come from the example in Brazil, which has a recent history uncannily similar to that of South Africa: In 2009, just 57% of Brazil’s population had access to banking services. This grew to 86% by mid-2022.

In 2020 the Brazilian government launched Pix, a free (for consumers at least) instant payments system. Since then adoption has been incredible with transactions totalling 3.9 billion in September 2023, a 70% growth rate year-on-year. Two thirds of Brazil’s population have used Pix, and it is now the most common form of payment in the country’s largest economy. 

However, this is beginning to change. Research from Mordor Intelligence found that cash transactions in retail in South Africa fell 19 percentage points between 2017 and 2021, now accounting for 38%. The ecosystem is in a state of flux.

As a base case, we can expect to see further growth in electronic payments. In fact, McKinsey’s report on the future of payments in Africa predicted growing adoption of e-payments due to a number of tailwinds such as the continent’s young demographics, economic growth, technological innovation and expanding payments infrastructure.

Beyond that, though, the future becomes harder to predict. It’s reasonable to expect that the Pan-African Payment Settlement System will launch in South Africa eventually, and the South African Reserve Bank’s (SARB) pilots with Central Bank Digital Currencies could offer a way to bring digital payments to the offline parts of the economy.

The most illustrative example of how quickly things could change may come from the example in Brazil, which has a recent history uncannily similar to that of South Africa: In 2009, just 57% of Brazil’s population had access to banking services. This grew to 86% by mid-2022.

In 2020 the Brazilian government launched Pix, a free (for consumers at least) instant payments system. Since then adoption has been incredible with transactions totalling 3.9 billion in September 2023, a 70% growth rate year-on-year. Two thirds of Brazil’s population have used Pix, and it is now the most common form of payment in the country’s largest economy.

With its young population and rapidly expanding infrastructure, South Africa’s payment evolution may look more like that of Brazil than it does the US or Europe. Nobody can know for sure, but there are a few steps that enterprise leaders can take to make sure they are prepared for what comes next.
 

Be ready for real-time payments

One of the key drivers behind the success of Pix is that payments are instant, which is massively appealing to customers and businesses that were used to waiting 2-3 days (or more) for funds to clear.

The appeal of real-time payments (RTP) is universal. It is also especially strong where consumers are used to waiting.

In South Africa, real-time payments also have regulatory support: the SARB has backed RTP as a way to further its objective of greater financial inclusion by expanding access to banking services and reducing reliance on cash, cheques and traditional payment rails like Visa and Mastercard. This is a key reason behind the launch of PayShap.

As Stitch co-founder Junaid Dadan wrote earlier this year, the global open banking wave is here in South Africa, with a number of different Pay by bank offerings including PayShap.

Capitec Pay, for instance, launched this year with great success, and we expect additional direct bank APIs to follow. The merchants that will win against competition will be ready for these offerings once live. They'll also have the ability to efficiently and effectively manage and reconcile these various integrations on the backend.

Omnichannel retail will continue to grow

Online retail is hardly a new phenomenon – it started back in 1994 with someone ordering Pizza Hut over the internet. Since then, e-commerce has grown into a sizeable chunk of overall consumer spending, boosted by the arrival of the pandemic in 2020.

Research from Statista estimates that e-commerce has reached a penetration rate of 34% in South Africa, and that this will grow to close to 44% by 2027. However, this does not mean that physical commerce is going away.

In fact, Statista’s research has also found that while e-commerce transaction values will far outpace other payment forms in the coming years, average transaction per user will grow much faster for mobile POS systems.

This points to a mixed retail environment emerging in South Africa, and companies will need to be able to offer their customers flexibility in order to keep up.

Stitch offers a range of solutions to facilitate this, such as one-click deposits and cash payments. But flexibility means more than just mixing online and offline payments.

A payments orchestration platform with streamlined reconciliation will be a must

As more, and more complex, payment method options arise, consumer expectation is keeping up with pace. The businesses that will remain future-proofed are those that are able to offer more options to their customers, for more tailored and specific needs and use cases, and efficiently manage that experience from start to finish.

Payment service providers like Stitch now offer payment orchestration platforms that can help businesses streamline payment operations via a single source of truth. They allow finance teams to manage recon and reporting across banks, providers and methods, and set rules to present tailored options to customers when they make the most sense. The business of the future will manage their payments with the same level of technology they use to manage the logic behind their core offerings. This will enable them to deliver the same level of tailored experience their customers have come to expect.  

A word of warning against fraud

As new forms of payment have emerged globally, it has increased the potential for fraudsters to target unsuspecting customers. As the threat grows, so does the burden on companies to ensure their customers are protected and their business is compliant.

Stitch employs a wide range of measures to ensure our clients and customers are as safe as possible. This combines industry standard practices and some best-in-class additions. You can read more about our fraud prevention activities here.