The economy of the future will need a vastly different platform for making payments. Consumers and corporations will need access to easier, faster and flexible platforms., BankservAfrica’s new chief executive officer Chris Hamilton has entered the market with the bold objective of bringing to South Africa and Africa, the revolutions underway in global payments infrastructure – and the necessity of re-design to keep up with the ‘payments Joneses’.
My experience across the payments industry – most notably in my most recent position heading up the Australian Payments Clearing Association Limited (APCA) for the past 10 years – has given me a deep insight into the approaches different markets take when redesigning payments to keep up with the demands of business and consumers.
Payments infrastructure design is similar to plumbing and sewerage – we all really need it, but we don’t want to spend a lot of time thinking about it.
To meet the future payment needs of our community and our economy, businesses need to approach payment system modernisation empirically, inclusively, holistically but above all, collaboratively. The design process really matters.
As an industry, we need to find a way to talk about what this needed and fundamental change is and do so systematically. System design doesn’t happen by itself, it needs intense collaboration.
Payments systems vary between, and even within countries, and are complex. They serve different agendas and business needs. One only has to look at the variation from PayPal to Bitcoin, Visa to Mastercard; and the range of secure options offered by individual banks.
Given the complexity, infrastructure redesign is costly, complicated and highly contentious, and thus only takes place every 20 to 30 years. The time, however, for a new South African design is now. Otherwise, the South African economy will not have the basic plumbing it needs for the future.
Globally there is a step-change happening in national payments infrastructure, from overnight batch with basic data to real-time, data-rich, flexible and layered. South Africa must join the trend, or be left behind.
In doing this, all the hard questions are not technological; they are social and political. What will our users and our economy need in 10 years’ time? How do we resolve all the competing business and political agendas to make sure they get it? What is the role of the national regulator?
There is much to be learnt from both the missteps and successes overseas.
The United Kingdom, Canada, Australia and the United States of America all have gone a long way towards renewing their payments infrastructure. But they are doing some of the thinking required to take them into the future.
The process in each case has not been easy and exposed the intricacies and difficulty in getting all parties – and agendas – involved to work in synchronisation.
Since time immemorial, we have been expecting our customers to adapt the way they pay to our available “set of rails”. So if you want to buy something at the shop, you get out your card; if a business wants to pay a supplier, it must do so by scheduling a payment with its bank or, heaven forbid, write out a cheque the supplier must then present to another bank.
There is nothing wrong with this; it is just the way the world looks right now. But will this do for the digital economy of the future where other aspects of our lives are fully online, real time and automated?
We need to start thinking creatively now because new systems take a very long time to develop – at a minimum five years. This is not because of the technology; it’s because of all the competing business and policy interests.
This approach calls for a rigorous, inclusive process. The U.S. – the world’s largest and most complex payment market – is the least designed because it is just too big. There are 13 000 payment institutions with millions of interested parties.
The Federal Reserve Bank has taken on the job of trying to rationalise the U.S.’s payment system. They have in the last two years published their own consultation papers and received thousands of responses.
They put together a task force of 300 people – made up of consumer and business representatives, service providers, consultants, and banks – to have a massive industry-wide discussion happening in a public way.
Australia’s New Payments Platform (NPP) felt like an overnight success because in 2013 the Central Bank came out with a strategic review that compelled the industry to build a real-time payment system. But the industry had already done most of the thinking work, starting in 2008. So the payments community was able to put together a well-designed proposal very quickly.
So we did it, in six months we actually put together a community of bankers and published a proposal for a real time payment system which became the new payments platform.
My view of the world is that there is no substitute for the industry players doing it themselves, and together. I’m accustomed to hearing, over my 15-year career banks saying ‘we don’t like to work with other banks because it’s too high risk and never works’.
Yes it is high risk, but also high return. Co-created networks are always better than government-built networks or compliance-driven outcomes. Only the participants know how the whole thing really works.”
The base of good payment systems is empirical research that is inquisitive, inclusive, and intentional, plus gets business to lead.
Streamlining the payments industry is still like herding cats. But a business-led process can be powerful and galvanising. It can also radically reduce the cost base, while revolutionising the industry.