Capitec Bank and MasterCard Southern Africa on Tuesday announced a pilot of the world’s first pre-authorised debit card based on the EMV standard, in the Qwa-Qwa town of Phuthaditjhaba in the Free State province.
The new debit card is specifically designed to provide a straightforward, low-cost banking product with easy access to the mass market — a concept the two players believe can be extended to other developing countries.
They plan to roll out 5 000 or more points-of-sale in townships and rural areas over the next two years.
The EMV chip technology behind the enhanced Maestro debit card means that participating retailers no longer need to depend on an expensive “always online” telecom infrastructure in order to accept securely debit cards. EMV is the global standard that ensures that smart cards issued in one country can be readily accepted by chip terminals worldwide.
Personal-identification-number-based (PIN-based) debit cards currently issued in South Africa come standard with a magnetic stripe. To accept payment with magnetic stripe cards, retailers have to be online constantly to ensure that transactions are authorised by the banks.
As well as being expensive, this requires a reliable telecommunications infrastructure, which is unavailable in many emerging regions worldwide, including some rural parts of South Africa.
MasterCard’s response to this challenge is the M/Chip pre-authorised debit solution that Capitec Bank is piloting. The solution exploits the investment that South African banks are making in EMV acceptance infrastructure, enabling Capitec Bank’s new cards to work in any chip-enabled terminal displaying the Maestro acceptance mark.
“In emerging regions, the majority of retailers are unable to have online telecommunication on a continuous basis, making magnetic-stripe cards ineffective for both retailers and cardholders,” said Capitec Bank CEO Riaan Stassen. “We are now enabling secure, cost-efficient card usage for retailers and consumers, in locations that were previously unfeasible in South Africa.”
Capitec Bank customers will be issued a Maestro card, which — in addition to having a magnetic stripe — comes with a PIN-protected microchip. Cardholders load this chip with a pre-authorised amount of money from their bank accounts. Any retail purchases made using these funds do not need to be authorised by the banks at the time of purchase.
The chip also calculates the total amount being spent, and when the pre-authorised amount has been reached, the cardholder simply needs to reload at any Capitec Bank point-of-sale machine or branch.
Cardholders benefit by not having to carry large amounts of cash to buy goods and services. Participating retailers benefit because they are guaranteed payment for all transactions completed with the Maestro card, without having to go constantly online for authorisation.
Also, the amount of cash retailers need on their premises can be greatly reduced. Once a day, the retailer can dial up to transfer the transactions, thus saving money and time.
A significant challenge for many South African banks has been to convert the estimated two out of three South African consumers who are currently unbanked into banked customers and payment cardholders.
“Offering new banking services to potential customers often requires a solution that drives down risks and costs,” said Eddie Grobler, senior vice-president and general manager of MasterCard Southern Africa.
“Capitec Bank is the world’s first bank to launch MasterCard’s pre-authorised debit solution with a secure offline processing capability that directly addresses these requirements.”
Access to all banking facilities and services is gained through a single product, Capitec’s Global One Facility, for which the pre-authorised Maestro card is issued. The banking fees are designed to be the most affordable in South Africa, with the loading of funds on to the chip and account enquiries being free of charge.
Any purchases made at participating retailers have a minimal fixed fee per transaction — likely to be about 50 cents, according to Stassen.
Capitec Bank anticipates targeting all customer categories with the new, pre-authorised Maestro card: bank clients, automatic teller machine users only, and non-bank clients.
“We believe pre-authorised debit addresses the mass market’s needs with an affordable, uncomplicated banking product,” said Stassen. “This solution may also stimulate the development of banking services in previously unbanked rural areas of South Africa.”
The main goal of the pilot, according to Stassen, is to understand customer acceptance, rather than a trial of the technology itself. The card has already undergone rigorous controlled testing at Capitec Bank’s headquarters in Stellenbosch.
Stassen believes it to be key that the card is an uncomplicated product, for the bank, retailers and, most importantly, for cardholders.
“Pre-authorised debit enables Capitec Bank to extend debit-card services to a broader audience at a lower cost,” said Grobler. “It also brings the advantages of debit cards to more locations in South Africa than ever before and facilitates the introduction of previously unbanked South Africans into the banking system.” — I-Net Bridge