As South Africa embarks on its payments modernisation journey, we have the unique opportunity to learn from the experiences of other countries. On day two of PIPC 2021, our Head of Product, Werner Pyke, led a discussion with industry experts, Bishnen Kumalo, Executive Head of SA Modernisation at BankservAfrica, Chipo Mushwana, Emerging Payments and Innovation at Nedbank, and Kevin Brown, Independent Non-Executive Director, Advisor and Angel Investor from the UK, to unpack how the UK’s open banking initiative can help inform the rollout of South Africa’s own innovative payment solutions.
See the full conversation below.
Starting with the UK open banking experience: It’s been seven years since the first open banking working group was formed in the UK,and four years since the launch of open banking in the UK, so by now there should be a lot of learning and data in terms of how it’s been adopted. Kevin, can you give us a sense of how open banking has been adopted in the UK over the last four years?
Kevin Brown: If you ask the UK public about open banking, they would look at you critically because it’s not a term they recognise. It’s fair to say it at an industry level in banks and FinTechs as they all recognise the term “open banking” or “open finance”, as it’s becoming more commonly known as we broaden the area and service levels. The public isn’t interested in open banking per se – what they are interested in is the propositions they get and how seamless those propositions are.
The journey that we have been on in the UK has been interesting. I think there is some very interesting similarity in terms of things that are happening, such as the changes in organisations that represent payments, and the inclusion of a border stakeholder group. We also have to view open banking as being a part of a big modernisation program that started with faster payments. Real-time is a very key enabler to open banking – you have to bear that in mind when you look at the services being offered. But you have to be aware that it’s not just about faster payments – it’s about services coming alongside that with data, the ISO 2022, the request-to-pay, digital ID, as well as some of the services that protect consumers as well.
In terms of observations on the journey, it has been a slow burn. This is partly because it’s complicated and it’s difficult, but also because it means networks working together to deliver the services. It’s interesting to observe the similarities with the way FBS was developed in the UK because banks have got different choices about how they play.
Those banks that have been strategic about open banking have seen it as a real opportunity to build and enhance their business. While others that have been at the forefront of new apps and services have viewed it as a regulatory requirement, and have done what they need to do, are now looking at how they might take the next step.
In terms of some statistics, the latest newsletter from the open banking industry body said there are 327 regulated entities or providers. A lot of those are third party providers – around 234. But just short of 100 are regulated entities like banks and financial institutions.
The thing to bear in mind is that the volumes are slowly increasing, and the key stats to look at are things like API calls. The latest running total is around 800 million API calls a month. That is starting to grow. That is just off the back of just good customer propositions. That is the key to success. It’s those customer propositions that drive the growth and the usage going forward.
One more question, along those lines: Volumes are growing, and there has also been a recent increase in the transaction value limit to £25 000. Has there been growth in transaction values?
Kevin Brown: This is about individual propositions. Within individual propositions, that value marker is important for some but not for others. What I find interesting is that over the last two years, we have seen a number of new services replacing card top-up services, using open banking to top up or move money between accounts. This used to be done via MasterCard or Visa, and is now being done by the open banking service.
The very powerful services that have been used regularly are those that, in the business market, integrate bank services with ERP providers. So, invoice information and payment data are all integrated into one app. That is making life very easy for smaller businesses and is saving them lots of money.
Bishnen, what are the metrics you feel are most important to watch?
Bishnen Kumalo: It would be on the uptake, as Kevin has said, and the increase in use and private consumers. How are consumers perceiving open banking? They’re not necessarily aware of the service’s underlying capabilities around open banking, but they are benefitting from that underlying service.
South Africa is a very unique environment in terms of our banking use and utilisation. It also speaks to the problems that we are looking to address in this ecosystem. Some are around financial inclusion, like Kevin said, and that speaks to different use cases or – from an open banking proposition – things like seamless onboarding when it comes to enabling people to enter the financial services ecosystem. This would be the kind of thing from our unique South African perspective, to watch closely. Countries like India speak about how they have facilitated financial transactions through the common sharing of data using ISO standards in order to enable that integration, as well as FinTechs.
So, the metrics that I would look at from a South African perspective would be those that would enable us to start addressing the unique problems that South Africa has, and how we can replicate some of those services to start the adoption and increase of core banking services for our South Africa banking consumers.
The banks that see open banking as an opportunity to enhance their business rather than just another regulatory item seem to have been more successful. Chipo, can you tell us about what you look for in a successful banking implementation?
Chipo Mushwana: One of the most critical things that we have to measure is customer understanding. It’s not an easy thing to measure because we can probably only measure it by looking at the adoption and activities of the customers who actually engage with the open banking products and services. I think that this adoption metric is motivated by two things: The business objectives and targets. Compliance can be used as an asset and not just a tick box, but there is also a need to get a better understanding of the customer’s financial profile, amongst other things, as well as the sentiment around innovation with everyone in finance being aware of this instruction and wanting to participate. So, I think for me that is the most important metric at this stage: How do we drive customer understanding, which in turn drives customer adoption?
While we are looking at the positive side of open banking, Kevin, have there been any positive unexpected or unintentional occurrences in the UK?
Kevin Brown: If you ask consumers about individual use cases, I think you will see that they are delighted by the fact that they are not having to read key information. Rather, they are able to move seamlessly and then get access to what they see as being a better proposition. That follows through both for retail consumers and business customers – ERP platforms working with banks to provide a seamless service is something that has been a big part of the positive journey. If you couple that with the emerging use of request-to-pay, all of these services meshed together give businesses and consumers a better overall experience.
It is important that you look at individual use cases and understand how those use cases are beneficial and who they can benefit. I think one of the challenges that is quite apparent is the mix of different segments and the benefits they offer. Clearly, where we have got people in the UK who have multiple bank accounts, their aggregation services have been really beneficial. But again, there is still a focus – quite rightly – on the group of more vulnerable customers and how they might be able to benefit. There, the understanding of open banking, of what it means in terms of propositions, is still a challenge in terms of communication.
On the topic of communication, as part of our own journey on modernisation, Bishnen, can you talk about how you think one can communicate to the public that the idea that the technology or terminology matters less than the use case?
Bishnen Kumalo: There are a lot of discussions to be had as we look to bring more people into the financial services ecosystem. I think that some of the benefits that Kevin has been speaking about from a UK perspective have to be looked at in the context of where the UK is at in terms of its use of financial services, and where South Africa is, and where other countries like us are. Some of the challenges we have are around consumer awareness and consumer training.
A use case that we have been thinking about recently is the places where people stay and the access they have to banking services, and that whole last mile – bringing banking capabilities to the consumer.
It’s not just about us as participants in the financial ecosystem indicating or telling consumers about the benefits that they can reap – it is about the practical use cases that enable these communities to access these financial services, to be able to take that data once they have registered, for example, an identity or digital identity, and share that information in a secure environment. Or, when someone registers for a SASA grant, making that information accessible to banking institutions so that they can receive their money in a digital format.
So, it is always about looking at where SA is in terms of the adoption of financial services, and how open banking and sharing of data in a regulated, trusted ecosystem could benefit the end-consumer.
Teaching our consumers about open banking, I would imagine, is possibly less of a benefit to them, but, enabling the types of capabilities and services that open banking can provide is probably where – from my perspective, from a modernisation perspective – I would focus our efforts on.
Chipo, how do you think about the small business sector in the context of modernisation and digitisation?
Chipo Mushwana: I really do think that it is an important sector that we need to focus on and enable. I was recently reading an article on Yolt – the PFM tool that allows users to view their bank account and credit card accounts in one place. Last week, they wound down their customer-facing app so that they can focus on open banking. When you unpack what they are really trying to do, they are now focusing on small businesses. I think that is an indication for me – not just of the opportunity that is there – but the need that sits in the small businesses.
Particularly, if you think about the South African context, we do have some serious socio-economic challenges, and the environment for small businesses to do business in South Africa is not the easiest. I do think we have a responsibility, as we drive this open banking agenda, to really service small businesses by providing information for the transparency that is needed to enable them to reach their dreams, but also to run their businesses on a day-to-day basis.
It’s a very interesting point that you make about Yolt, and maybe just to wrap this section up, let’s get back to Kevin. So, Yolt was an interesting example of an initiative launched by ING bank. ING came back to the UK with Yolt, and then started out with a consumer focus. It has now switched over to a small business focus. Kevin, is it then true that the success in open banking maybe comes after the first pivot? Because it feels like Yolt came in in one way, then made a little bit of a pivot, and is now finding its traction. So, should we expect that it needs a bit of a pivot?
Kevin Brown: In the initial wave of open banking, the use case of aggregation of accounts and consolidation of information from finances was probably the key proposition. This is why ING came in on that proposition.
What has happened here in the UK is that virtually all of the mainstream banks can do that as well. So effectively, if you bank with a Barclays or a NatWest, you can easily import your bank details from any other bank account that you have got. What’s happened is that people have consolidated into their current relationships, which in some ways is helpful for the current incumbents, but not for new challenges in that sense.
Some of the big challenger banks have won in that process as well. Places like Starling and Monzo have been very successful in that space because they have been providing the bank services alongside the aggregation. I think the other thing that is driving that picture in the UK, particularly in ING’s positioning, is that there are very little revenue opportunities directly around the consumer market. Whereas, like many markets, when you look at the UK, US or elsewhere, the business market has a good opportunity to drive some revenue and there is real value to the end-user. Businesses are prepared to pay – they see the value of the services and how they link together and therefore, it’s a win-win on both sides.
I think what you are seeing now is that the next level of evolution is around revenue opportunities, value propositions, and that spans not just in the business market, but elsewhere as well.
The big companies are paying less because they won’t be paying for a merchant service charge – they will be paying the transaction charge. So, they are quite keen to do that, but it comes with other challenges because consumers get protection from using their cards. You are looking at the next stage: people are looking at how you insure payments and provide some sort of protection for consumers that way. That is a challenge for the regulators.
On the topic of consumer protection – while the UK’s initial launch of open banking put a lot of thought into data protection and privacy, there was a gap in terms of the processes around dispute resolution and grievances. Is that true, and where is the UK headed now in that regard?
Kevin Brown: It is true. In some ways, the UK has been helped by the slow takeup and slow pace of taking up. I think it’s given banks an opportunity to think about full protection and services around that. But again, if you talk to the banks, they’re looking at this as being just one of many routes for fraudsters. I think the challenges are the same for other services. So, this is around how you protect people’s account credentials and how you verify that the person who is initiating the transaction, whether it’s a data transaction or a payment transaction, is who they say they are.
I think, in terms of looking forward, you are going to see much more around things like consent dashboards so you can see what you have agreed to – those sorts of services – plus the continued focus on payment protection in the UK. So, they have introduced the confirmation of payee services, and that is, again, a key part of the protection for consumers so that they know who they are paying. Digital IDs are a big part of that, and open banking interestingly has a part to play in that because you can use open banking to provide issuer’s credentials as a part of the ID process.
The UK seems to have had a grace period due to the slow adoption because of the risk. From your perspective, Bishnen, in terms of modernisation, how do you think about balancing speed and innovation with consumer trust and processes for handling these issues? How do you approach it?
Bishnen Kumalo: It has to be one in the same. If we are delivering capabilities or products that are touching the end-consumer, and there’s any question of trust, or sharing of information for fraudulent purposes that could lead to individuals losing their balances – if we launch any capability in the financial services ecosystem, whether it’s within partnerships with FinTechs or major banks, risk and trust is critical for any use or take-up that we expect out of these capabilities that we’re going to provide on the modernised rails.
We are also driving, as BankservAfrica, the Rapid Payments Programme in collaboration with the financial services industry PASA, and other key players in the financial services ecosystem. One of the things that we are constantly looking at and evaluating, including reviewing global standards, is how safe our capabilities are, the flows of information and the opening of potential fraud and fraud mitigation. The more we ask consumers to move away from cash and into digital ecosystems, the risks that they fear of their money disappearing or information being shared for nefarious purposes are impacting them. Coming from the banking sector, we know that once you lose a consumer, for any reason, getting them back to utilise the same capability again is exponentially harder.
Someone mentioned on the chat that word of mouth in the South African ecosystem – in any ecosystem – counts a lot. If there’s any sense that the capabilities that we’re providing are not safe or contracted, it won’t get used.
With the Rapid Payments Programme, we’re dealing with smaller transaction volumes. But as you know, in our society, losing R100 can have an adverse impact on someone who’s getting a R350 social grant. It’s a big knock. So, we are not going into any consumer-facing capabilities without ensuring that the capabilities we have will protect the end-consumer, and that’s the bottom line. There’s no grace period for us: we have to ensure that our systems are robust and trusted, and that our end-consumers can use them. We can then encourage that adoption without any regressions or any breaches of that trust.
Chipo, as a representative of a participant bank, do you feel that the existing approach to risk management from a process perspective – or the existing procedures around risk management – do you think that they can keep up with the speed at which something like open banking might put stresses on it?
Chipo Mushwana: I have no choice but to say we have to. Too much of the narrative around open banking, as we all know today, is centred around the promise to delight customers with personalised financial services. A balanced view around the risks being taken is important, and I think the conversation we were having earlier around customer education or consumer education is important because these new risks emerged because of the increased volumes of data, as well as the speed at which we have to process this data. That’s why the ecosystem that we find ourselves operating in involving banks and non-bank industry partners has to ensure that everybody has the same level of sensitivity towards customer data, right?
Banks have the benefit of having done this for decades. And we’ve got systems in place. But it’s interesting when you’ve got new entrants coming into the space because it can be a daunting environment in itself. I do think that this is where the regulator – and everybody that’s participating – has a role to play in ensuring that we all not only understand what we need to do, but also that the standards are put in place that we all have to adhere to to make sure that it’s safe, and that it’s secure.
I always say we digitise for human beings, not for robots. So, at the end of the day, whatever services and products we take out into the market must be clear, must be understood and have to be consumed. That is why we are here doing what we’re doing today.
Kevin Brown: I just want to highlight another risk. This is one that doesn’t often get a lot of airtime, but I’m sure the people listening, particularly those with a technology background will be well aware of: we’re moving into a real-time world. And actually, one of the big challenges – and it’s a continual challenge – is continuing to operate in that real-time world 24/7, responding to those API requests. So, API performance is key.
Also, when you look at this, if a consumer or business uses an open banking service, and there is a failure in that API request, or there is a time lag in the API request, that can challenge their continued use of that service. So, resilience around your technology and delivery of this, and your API performance is key to success.
The UK was lucky to have the experience of doing faster payments very early and realising that consumers now expect their bank to be working 24/7 continually, and the minute something stops, they’re immediately on Twitter saying the bank’s broken. The same principles apply to open banking.
And I think that’s very key to know. It’s not just about propositions. It’s not just about the services. It’s about the underlying technology, delivering 24/7 speed at a pace that supports the propositions.
There seems to be a thread that’s run through our conversation, which is that it’s really important to understand what the problems are that we’re trying to solve, or what the consumer value – or the small business value – is that we’re trying to deliver. If you had to focus on where you see the modernisation journey, Bishnen – especially in the short term – what are some of those key areas that you feel we need to be solving for within this context? And then leading on from that, Chipo the same to you?
Bishnen Kumalo: The key elements that I think from a use case perspective we need to solve for are a lot of the same challenges, and a lot of the same objectives, that Kevin mentioned.
From my perspective, you need to look at what the use cases are to understand what the problem we’re trying to solve is. And then what the environment is in which South African consumers are operating in, and ask : how can people bank, how can we facilitate or enable them to utilise financial services?
It’s a big drive for us. We’ve got a large portion of consumers that are banked, but equally large sections of our society, that though they may be banked, are drawing down their balances as soon as they receive them. Looking at our ecosystem and our national consumer base, as well as potential consumer base, we know that they will be cash-based, and could benefit from something like open banking.
Like Kevin mentioned, from a modernisation journey, digital identity, credentials, checkings, identity and validation, authentication of transactions, all become key important capabilities and components for us in this ecosystem.
Faster Payments – we call it Rapid Payments within the South African ecosystem – also utilises ISO 2022. And we’re ensuring that we’re using modern rails that are interoperable within the financial services ecosystem. So for me, we start with the consumer, we build modernised rails, we provide API services – the relevant API services that our financial services ecosystem is looking at.
A part of this modernisation journey is also looking at how can, as Chipo referred to them, non-banking participants or FinTechs or other players, enter the ecosystem without introducing risks into the ecosystem, but also taking some accountability for some of the obligations that the larger financial institutions have had to put up in terms of the rails.
We didn’t speak about this, but the cost of maintaining this broad-based ecosystem is large because you’ve got this digital ecosystem that we’re looking to modernise, that we’re looking to provide capabilities and services, like real-time payments, to our end-consumers. Then it’s protecting the consumer throughout the transactions end-to-end, so that we can start to get adoption. The big-ticket item for us – our ultimate goal – is to ensure that South Africa has a wide use of financial services to benefit from. All of these components are factors that lead us to increased use of the digital ecosystem for the benefit of our consumers, and then again, for the benefit of SA Inc, and the country at large.
It’s multifaceted, I wish it was one answer. We all have a role to play, including the regulator – they have a massive role to play in protecting the end-consumer in ensuring and maintaining the ecosystem that it all contributes towards.
There are so many players in this ecosystem that we need all of us to be playing in this space and driving for the same objective. I can tell you that when we look across the financial services ecosystem, we’re all driving towards the same set of goals. We want South Africa to be an all-inclusive financial economy to grow the economy.
Chipo, do you also see it as a growth engine?
Chipo Mushwana: Yes, definitely. I think Bishnen has given the details behind it. But I think, broadly speaking, whether you look at the UK and globally at some of the advanced markets in terms of open banking – whether we’re talking about promoting competition, like you said – whether we’re talking about digitising or replacing cash, allowing FinTechs to participate, etc – I do think that in the South African context, these are all things that we all have to take into consideration. We have an economy that’s not growing as fast as we want it to. We’ve got the highest Gini coefficient. We have all these things that are happening around us, and as players within the financial services space where there are banks or non-banks, we all have a role to play in promoting this competition and collaboration, which is critical in creating this balanced ecosystem. And that’s why the conversation on open banking is important today, but most importantly, digitising capture.
I think those that are involved in the RPP programme understand the cost of cash, not just to the customer in terms of safety, etc, but to those that handle the cash balance and everybody else. The importance of facilitating these quick and cheaper payments is really important in driving the much-needed socio-economic activities that will support the growth of the economy, and most importantly, increased financial participation and inclusion.
So, it’s not just about digitisation, but really about bringing it all together, because it is an SA Inc story. We really have to grow and understand the South African economy, and to do this, we all need to participate.