Confidence in African digital payment solutions is essential to minimizing fraud and corruption while improving the free flow of funds to boost business and economic activity.
Their value is illustrated in statistics released by the South African Banking Association (SABRIC) in June 2020.
The report found that digital banking fraud had risen by 20% but that the fraud losses on banking applications had only increased by 1%, in spite of a significant rise in transactions.
Mobile digital payments offer consumers and businesses a convenient method to manage funds, make payments, and gain visibility into accounts and transactions – effectively putting a bank in every pocket.
Accessible and reliable, they’re the oil that lubricates the formal and informal economies, enabling financial inclusion at all levels of business and society.
Payment technologies have the potential to open access to financial services for people from all walks of life, and can scale-up with organisations of all sizes.
Micro-enterprises are able to leverage digital payment platforms to receive payments, cut down on cash transactions to reduce cost and risk, improve financial management, and deepen their relationship with formal finance for great access to financial services.
Small to medium enterprises (SMEs) can benefit from digital payment solutions, increasing access to customers and the ability to reach new markets with eCommerce, reaching remote areas and reshaping how they do business, a particularly relevant step in a pandemic controlled market.
The fraud conundrum
According to Deloitte, COVID-19 has made digitized payments and payment solutions critical, minimizing reliance on cash transactions and improving financial inclusion.
The report found that around 90% of retail outlets in the financial sector are still using cash exclusively, largely due to issues around friction and cost with cards in remote and rural areas.
The lack of connectivity and the risk of fraud make cards a low priority for these merchants.
But, if the mobile payment is made via a card to the account, the cost and friction are only reduced.
A mobile, digital card linked solution is better than plastic and will minimize the risk associated with card payments – a risk that SABRIC’s report identified as on the rise by 20.5%.
The problem with legacy is that it is a legacy. All of the main card schemes (Visa, MasterCard, UnionPay; and all of the BigTech, Ant Financial/AliPay, WeChat, Amazon, Facebook, Google et al payment offerings) use super-apps with payments attached to cards that harvest customer data and ultimately dis-intermediate the bank from their customer.
In any card transaction, whether or not it is a virtual, mobile, QR payment experience, customer information travels with the payment and has to be encrypted, decrypted and re-encrypted.
There are two big risks with legacy. Fraud risk where customer information can be compromised, and disintermediation risk where a third party harvests data with the intent to get in between the bank and their customer.
The anonymous 20 digital number is unique to each transaction, lives for four minutes or a single-use, and is only associated with the customer’s information inside the bank.
This makes compliance with General Data Protection Regulation (GDRP) and Payment Card Industry (PCI) data security standards a moot point and it assures the bank and the consumer that their information is safe, privacy assured.
Undermining the bank and consumer relationship is not a positive disruption. It introduces risk and off-shore dependency in the financial market and it weakens domestic financial intermediation that is essential for a healthy financial system for domestic economic growth.
Cards and cash can be stolen or faked, but secure anonymous digital transactions are safe because there is no information to steal.
Although there are regulations and measures in place to protect consumers and businesses from card fraud, these are often not effective.
The risk to consumers inhibits use and undermines trust in digital payments.
The risk to banks is expressed by increased service fees for the payment. These fees are passed on to merchants and built into the cost of goods and services.
The consumer, who was once unbanked or is underbanked and suspicious of traditional forms of electronic banking, is now given the opportunity to experience new ways of paying from any funding source that is account-based, loyalty points, prepaid gift cards, bank accounts or with funds in a non-bank financial institution.
This benefit is tightly aligned with the SMEs who serve the customer.
They can now include value-added services for digitally-empowered clients that allow them to interact with the business in entirely new ways.
SMEs can create digitally accessible discounts, vouchers, and loyalty plans that engage with customers and drive transactions. This increases inclusion, adds to a company’s credentials and gives greater room for growth.
Fraud may be endemic in many financial systems, and risk may always be present but, with the right digital payment platform and investment, SMEs and their customers are given protection and privacy over their transactions, increasing confidence and providing a safe and convenient way to pay from any account to any merchant.
The digital transparency provided by the financial institution provides the data and assurance needed to bridge the financial inclusion gap left behind by traditional legacy banking solutions.