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Interoperability and the Rapid Payment Project

Murray Gardiner, MD of Bluecode Africa, explains the transformative power of digital mobile open payment.

The continent’s most developed economy, South Africa, is ready for greater ease in transferring money between customers of different banks. Such an enhancement will mean that those who often face barriers within the local financial system could be brought into the fold.

The country is betting on interoperability with the Rapid Payment Project (RPP). The RPP will bring instant clearing and allow banks, and presumably non-bank financial institutions, the ability to ‘push’ payment clearing messages like instant electronic funds transfers (EFTs) to other financial institutions, facilitating a high volume of low-value instant payments.

This will be transformative for the national payment system (NPS) and will allow for instant clearing and instant access to funds for small merchants. This represents a move towards instant digital ‘push’ payments for consumers, and the market will presumably open up to various last-mile payment technologies to enable choice in the market.

What about cards?

Cards are a ‘pull’ payment where consumers provide authorisation for merchants to withdraw money from their accounts by providing card authorisation information.

Murray Gardiner, Managing Director, Bluecode Africa

This subtle difference has a profound effect. With cards, the merchants’ banks authorise merchants to accept card payments and the banks seek settlements on behalf of those merchants. This infers a close and interdependent relationship between banks and merchants and allows the bank to extend risk-based financial products and services.

The downside of cards includes foreign rules, complex compliance and security requirements that have to do with the legacy technology behind transactions, and associated fraud risk. All the costs of plastic (POS terminals, fraud risk, data privacy compliance, and foreign exchange fees on local currency transactions) limit the reach of card acceptance to the established, more affluent segments of the market.

The best of both worlds

South Africa’s payments ecosystem needs a digital account-based alternative to cards: a mobile digital ‘pull’ open-loop merchant payment that provides the benefit of cards without the inherent costs and constraints.

Additionally, this digital, mobile, open payment needs to have general acceptance, like card payments, but not be dependent on a foreign legacy card scheme.

A digital, mobile account-based merchant payment would increase the size of the addressable market for financial services and create opportunities for banks and aggregators to bring the informal sector into the formal economy. This would benefit consumers and, most importantly, small, medium and micro enterprises (SMMEs), including micro traders, small farmers, artisans, and the myriad sellers of goods and services that make up the informal economy.

For digital mobile merchant payments to scale against cash, there must be a strong value proposition for both the consumer and the merchant. The consumer needs to be able to pay in a consistent way anywhere, irrespective of who the consumer or merchant banks with. For the merchant, payments must be simple, convenient. The merchant should also be able to experience the benefits of access to valued and affordable financial services.

About Bluecode:

Bluecode is a mobile payment solution that combines cashless payments via smartphones with value-added services and enables payments with merchant and banking apps. Founded in Europe, Bluecode has now expanded into Africa.

Bluecode Africa is taking mobile payments into markets where its value as a technology payment service and scheme can make a significant difference for retailers, SMMEs and in the everyday lives of consumers. Bluecode Africa is focused on driving economic growth in the productive economy by unlocking opportunity and business potential with digital transparency.

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