By early next year retail banking will move into the 21st century and provide real-time electronic payments.
While the Competition Commission’s report into the banking industry claims that banks have been working in real time since 1998, the reality is that this only applies to large corporate transactions of more than R5-million.
The average banking customer is far more familiar with the idea that a payment can take up to two days to reflect. More than 403-million electronic transactions worth more than R2-trillion have been processed between the banks in the past 10 months. Delays in payment on this magnitude have enormous economic implications, especially for small businesses where it can have an impact on daily cash flows.
With people used to the idea of payments taking a few days to reflect, many businesses now experience a modern version of ‘the cheque is in the post” as they wait for payments to reflect.
The banking industry has been working on the initiative to offer real-time transactions for the last three years, driven by Absa.
Real time means that the minute you press the execute button on the Internet banking site, ATM or cellphone, the funds will reflect in the recipient’s account.
FNB and Absa will be the first banks to go live with the product early next year, with the other banks agreeing in principle but not ready to implement the systems at this stage.
Walter Volker, general manager of Absa group payment systems, says the initiative is way overdue. ‘The technology exists to implement it so it is ridiculous that customers have to wait a day for payments to reflect.”
Absa has been ready to launch its real-time payment system for more than a year but has been waiting for buy-in by other banks.
Batlhako Ntsime, chief operating officer of FNB Online, says FNB’s adoption of the system has been driven by the demand from clients for improved efficiency. He says that, although initially it will be offered as an option on accounts, FNB hopes that over time it will become an industry standard.
Volker says initially customers will pay a premium to use the real-time payment option. However, he also believes that real-time payments will become industry standard.
Peter Schlebusch, deputy chief operating officer at Standard Bank, says that while they are part of the initiative they still have some concerns around implementation.
Standard Bank is not sure that there is a strong enough business case to offset the additional work and risk controls that will have to be put in place.
Volker argues that the business case is improved customer service as well as reduced credit risk for clients. With real-time payments, business can work on a cash-on-delivery (COD) basis.
As the delivery is made to the client, the client will be able to instantaneously make the payment and take receipt of the goods. This will reduce the risk for both the supplier and customer in terms of payment and receipt of goods, and also reduce the risk of bounced cheques.
Currently the banking system works on an overnight batching and processing system, unless the payment is made within the same bank. Depending on when one makes the payment, inter-bank transfers will take at least a working day or two before they are reflected in the recipient’s account.
Currently banks batch the payments at about 4pm in the afternoon. If, for example, one makes an electronic transfer at 2pm from an Absa to a Standard Bank account, the money will be batched at 4pm along with all other payments made during the course of the day.
Once it is batched it is sent to Bankserv, which acts as a switching facility between the banks. By about 7pm Bankserv allocates the payments to the different banks, which then receive the funds and process them overnight.
Depending on the receiving bank’s technology, the funds will be available in the recipient’s account during the night. If, however, one only makes the payment after 4pm, then the payment will only be processed the following evening, which means the money will reflect only 36 hours later.
If payments are made on the weekend, they will only be batched on the Monday afternoon and payment will only reflect late Monday night or Tuesday morning.
According to Ntsime the good news is that, although you have made the payment, say, for example on a Sunday, and the money is allocated, the money effectively sits in your account earning interest until the bank does its batch run.
Schlebusch says that while only about 1% of payments are made after hours, missing the batch cut-off, these create the perception that bank transfers take up to three days to reflect.
Banks argue that if a payer claims they made the payment before 3pm on a working day there is no reason the funds should not be reflected in the account the following morning. However, bill payers often hide behind the ‘three-day” excuse.
By introducing real-time payments, small- and medium-sized businesses will be in a far better position to manage their cash flow and debtor’s book and it will cut down on everyday banking frustrations.