The next evolution in South Africa’s bank to bank payments space

South Africa’s bank to bank payments ecosystem continues to move at a rapid pace. Just last year, we illustrated the shift in the market from Instant EFT to a broader Pay by bank offering, which incorporates both Instant EFT and new bank-led APIs.

The landscape is about to shift once again, this time bringing the Pay by bank space into a world that more closely resembles card payments - meaning more convenience and security for end users, and a more standardised offering for merchants across banks. 

Generation 1: the onset of Instant EFT

Instant EFT as a payment method was developed to solve several challenges for consumers and merchants. First and foremost, it expanded reach, enabling consumers without cards to easily and securely transact online directly from their bank accounts - with a better user experience, higher security and faster attribution of funds than manual EFTs.

For merchants, it provided significant cost savings on fees vs card payments, and enabled growth at scale, with faster payment allocation and a higher level of security. Initially, banks remained skeptical and resisted the method, so these solutions were built and managed by fintechs. Very quickly, uptake grew, proving the case for instant payments, and demonstrating the ways in which they met the needs of consumers who increasingly demanded faster, more seamless experiences.

Stitch was one of the first fintechs that brought a reliable Instant EFT solution to market, and differentiated with our flagship one-click, tokenised bank to bank payments solution, LinkPay.

Generation 2: the launch of bank APIs

Once the case was proven, banks began developing their own APIs on an individual basis - starting with Capitec Pay, and later followed by Nedbank Direct EFT and Absa Pay. These required payment providers like Stitch and merchants to develop relationships with, and work alongside, each bank as the APIs launched, in order to bring them to market.

As there was no standard, each bank’s solution differed from the others from both a technical and feature perspective, and each went to market with their own commercials. They also reserved the right to approve which merchants were able to integrate their API, which meant that access was not necessarily universal.

Stitch has been at the forefront of this evolution, working closely with each bank as these APIs were brought to market, so our clients could continue to access the latest offerings in the space.

Generation 3: The Pay by bank scheme

The bank to bank payment method is entering its final form with the upcoming launch of the Request to Pay feature from the Rapid Payments Programme (RPP). With this launch, instant bank to bank payments will function in a way that’s more akin to card payments. There will be a scheme, issuing and acquiring banks in each transaction and a central, regulated interchange rate, which is still to be determined.

The result is that there will be a more standardised baseline Pay by bank offering that will be more easily accessible across providers. However, given limitations in the early days, elements from the previous two generations will remain relevant. For example, not all major banks will be participating in the first RTP cohort. Merchants will need to find other ways to accept payments from customers using those banks.

The launch of the scheme as a whole is a significant undertaking. There remain several unanswered questions that will determine its future success and adoption in the market, including:

• The precise pricing of the interchange, which will set a standard across providers
• How refunds will be handled (this is an element that was missed by most banks when developing bank APIs in generation 2)
• How chargebacks, fraud and consumer protection will be handled and prioritised
• The participation of non-banks in the scheme directly
• The limits on payment value, which will determine which types of merchants and transactions the scheme can be used for

The role of payments service providers like Stitch

In this new and increasingly complex environment, payments service providers will become more critical than ever. Merchants will need a payments partner that can enable them to remain at the forefront of continued developments and navigate continued changes in the space, while finding ways to help them stand out from the competition and increase efficiencies.

At Stitch, we see this new rail as an opportunity to develop even more robust and tailored offerings for our clients that take their bank to bank method to another level. In highly competitive sectors, speed is critical, as the payments experience continues to play a crucial role when it comes to how and where consumers decide to spend their money.

Stitch is the best partner for enterprise merchants in South Africa due to:

• Our knowledge and experience with Pay by bank solutions. We have been a market leader in the bank to bank payment space across all three generations of its development
• The quality of the Stitch platform, including industry-leading reliability
• Our expertise in serving enterprises at scale

We also offer differentiated experiences that will be built on top of the RPP rail, including:

• Higher conversion with one-click checkout experiences
• The ability to accept recurring collections via Pay by bank
• Support for banks within and outside of the initial RTP cohort, with the ability to easily switch between generation one, two and three offerings
• Built-in fraud detection and prevention
• Seamless reconciliation across methods

Get in touch to learn more about how we can help enterprise merchants remain at the forefront of the bank to bank payments evolution in South Africa.