Open banking in South Africa: PayShap, Capitec Pay and the importance of bank-TPPP partnerships

South Africa is witnessing a transformative shift in its financial landscape as open banking becomes more prominent. Today we are working toward a shared vision of enhancing financial accessibility, security and efficiency across the payments value chain: from consumers to banks, fintechs and merchants.

At our recent Scale Summit, we heard more on the impact of open banking innovations from industry leaders including Jerome Passmore (Head of Capitec Pay), Bonolo Sekhukhune (Head of Business Enablement for Payments at Standard Bank South Africa), Colin Marnewecke (Product Manager for Real-Time Payments (PayShap) at BankservAfrica) and Louis Van Staden (Head of Product Partnerships at Stitch).

Open banking is set to reach a total market value exceeding $123.7 billion by 2031. There are clear use cases for ways it can enable more beneficial partnerships between banks and Third-Party Payments Providers (TPPPs), more custom and tailored solutions for consumers and new offerings like Variable Recurring Payments (VRP).  

While open banking remains nascent in South Africa, solutions like Capitec Pay and BankservAfrica’s PayShap are already demonstrating their potential in the local market. Here, we look back at our panel from the 2nd annual Stitch Scale Summit, where experts discussed how these solutions work, their objectives, how partnerships within the industry can enable the successful adoption and advancement of open banking in South Africa and more. 

What is open banking and open finance?

Open banking enables regulated third-party financial service providers (TPPPs) open access to consumer transaction and financial data from banks and non-bank financial institutions, through the use of APIs. By relying on networks rather than centralisation, open banking can help financial services customers to securely share their financial data with other financial institutions.

Open finance expands on the idea of open banking to include a broader range of services beyond just banking - essentially including access to a consumer’s entire financial footprint. This encompasses things like insurance, investments, payments and more, with the goal of making it easier for consumers to access digital financial services and manage their financial activities. Jerome Passmore explains:

“Open Banking has been seen primarily as a push from the banks to become more open. [...] In open banking, there are traditionally two pillars: to share account information and to give the ability for a third party to initiate a payment request.” He adds that “Open finance is like the wrapper behind open banking, broadening the use cases of open banking.”

Standard Bank’s Bonolo Sekhukhune sees open banking as rooted in the concept of enablement and interoperability. She asked, “How do we enable third parties to process payments for their customers in terms of the user and the value proposition they’re driving?” 

A closer look at PayShap

Launched via a pilot programme in March earlier this year, PayShap is South Africa’s long-awaited Rapid Payments Programme (RPP). The program was developed as part of the South African Reserve Bank’s (SARB) Vision 2025, which aims to modernise payment systems in the market, with the goal of reducing the number of unbanked South Africans.

Briefly, the RPP aims to make it easier and more cost-effective for South Africans to send real-time payments. Rapid Payments is an alternative to cash, offering South Africans the ability to pay without knowing the recipient’s banking details. Payments are made to a bank account or a proxy (such as a mobile phone number) that has been linked to an account or wallet at any bank.

Colin Marnewecke describes PayShap’s use case as “trying to displace around 10% of cash currently in the market.” He continues, “That’s our mission; that’s our purpose. We're pushing as hard as we can to achieve that in the very near future, but we can’t do it on our own. We need to increase the adoption of PayShap because it is a real benefit if we can get this right.”

He emphasises the technology PayShap is built on as a boon for its potential, “The technology PayShap is built on is part of what makes it interoperable. It’s built on ISO 20022. Conversely, Card is built on ISO 8583, whereas PayShap is built on a Distributed Ledger Technology, which allows it to be more agile, and accelerate growth and innovation. The architecture is also key here – it’s a global standard.” He adds, “That means we’re not only solving and innovating domestically; we can also do it regionally and internationally.” 

Taking a broader look, Bonolo Sekhukhune highlights the role PayShap plays in achieving the South African Reserve Bank’s (SARB) Vision 2025, commenting “[in the vision], it was mentioned that financial inclusion is quite important. [This includes] interoperability as the bedrock for innovation, [to encourage] more competition.”

From Standard Bank’s perspective, Bonolo commented, “We have been looking at how to leverage what we’ve built, which is a pay-by-proxy - specifically in our business as well as our corporate use cases and how we can enable that.”

Colin told us that around 60% of customers are averaging between 4–7 transactions on a monthly basis, indicating repeat usage in the PayShap environment. In October, PayShap was touching close to almost 1 million transactions. On the proxy side, he noted they had over 1.5 million proxies - or shop IDs and mobile numbers - enlisted on the platform. 

Capitec Pay’s rapid growth

Also in March, Capitec launched the first bank-specific open API in South Africa, known as Capitec Pay. Capitec Pay allows Capitec users to make direct bank-to-bank payments using their mobile number or ID number.

When using Capitec Pay, funds are transferred directly from the customer’s Capitec bank account, and the merchant is notified to release the goods or services, or credit the user’s account, as soon as the authentication of a transaction is complete.

Jerome explains the origins of Capitec Pay, which was created to solve a specific client problem. “After COVID, we realised that everybody had to do a lot of online shopping, and it wasn’t necessarily inclusive enough for everyone to access and get services.” Commenting on the importance of partnerships within the open banking space, Jerome says:

“Open banking drives innovation. But it’s also very dependent on the willingness of all parties to go along with that.”

On the adoption of Capitec Pay, he told us, “Since we officially launched Capitec Pay on 6 February 2023, we’ve got some clients who’ve used Capitec Pay 18 times since the launch. Now, about 3.5 million clients are actively using it, and we’re processing about 12.5 million transactions a month.” 

Notably, Capitec also offers PayShap to its clients. Jerome explains the reason for this is that, “At the end of the day, we’re serving the same objective: we all want to move from cash to electronic payments. Capitec Pay is a closed-loop system; it’s for Capitec clients, and it’s not interoperable.” 

He continues, “Although it’s significant in terms of the footfall we bring into a merchant’s environment, we need to solve the problem as an industry and as a collective. PayShap serves our purpose as a bank, as we want to remove cash from the system. We know that it’s not convenient, that it’s risky and that the perception of cash is that it’s free - but it’s not. So, PayShap becomes a universal lever for us to work with.”

The importance of partnerships in South Africa’s open banking ecosystem

In order for open banking to become a reality for the majority of South Africans who require access to financial services, and other ancillary services like lending and insurance, for example, it’s crucial for all parties - banks, regulatory bodies, fintechs and other financial institutions - to work together to realise this reality.

Louis Van Staden of Stitch explains, “Everybody in the value chain is trying to solve a problem, and you want to be solving the problems that you’re going to be the best at - and that you’re going to be able to do sustainably from a cost perspective.”

Fintechs and TPPPs play a critical role in bridging the gap and offering innovative financial products to a vast cohort of consumers. “In terms of offering a broader range of payment methods, it’s really tough for businesses to do that themselves.”

“Payment methods and digital wallets like Apple Pay and Google Pay are complex to integrate and complex to manage. It’s not just a case of integrating once, and you carry on, and you’re finished. These products and their APIs are always changing.”

He also notes that “Managing that basket of payment methods for other businesses is also really important and a really great way to ultimately enable more access to the consumer.”  

Furthermore, fintechs also enable the adoption of open banking products like PayShap and Capitec Pay. “For TPPPs or fintechs that have significant relationships with multiple merchants already, adding that product [Capitec Pay] and distributing it to these merchants is a very efficient way of expanding the use of Capitec Pay.”  

Beyond just providing access to a variety of payment methods, fintechs also help merchants reduce the administrative burden that comes with managing multiple methods. Louis explains, “Now, a merchant still needs to reconcile its transactions. They need to see and know where their transactions are, what their statuses are and where the money is.” He continues, “That’s also a lot of work across multiple payment methods and even across multiple currencies. Being able to solve that creates a much more scalable solution for businesses and again ultimately makes it easier to offer these products to consumers.”

Jerome shared Louis’ sentiments, commenting, “The success of Capitec Pay has largely been through our partnership model. We’ve got about 28 partners made up of fintechs and TPPPs that are integrated with the API. They bring the distribution access of Capitec Pay to the merchant base and are also able to fulfil their role as a TPPP.”

Bonolo adds that Capitec Pay is a great case study, providing practical examples of how other banks can think about creating similar offerings. 

The future of open banking in South Africa

We’re still in the nascent stages of understanding the capabilities, and equally the limitations, of what open banking and open finance might have to offer. Over the next months and years, we look forward to seeing the new use cases and applications for South African consumers and businesses, and the potential to expand financial inclusion in the country. 

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