For any country, payment systems can be tagged as an important engine that serves as a driver of the economy. Hence, the better the payment system in place, the smoother the economic ride.
The long-established payment method by cheques is one of the oldest payment methods used globally, as well as in Africa’s second-largest but most advanced economy, South Africa. Basic Business Studies likens a cheque to an instruction given by an issuer to a bank for it to make a certain payment ascribed.
In a recent development, South Africa Reserve Bank (SARB) has declared it is putting an end to the use of cheques for payment, starting from the first day of the new year, 2021. This order was given about a week ago and calls for the abolishment of cheques which would take effect from the new year.
This conclusion was arrived at after what can be said to be a long consultation process with stakeholders, who have collectively agreed that cheques have no future in modern payment systems.
The official statement from the apex bank reads, “The South African Reserve Bank (SARB), Financial Sector Conduct Authority (FSCA), Payments Association of South Africa (PASA) and the Banking Association South Africa (BASA), are jointly communicating to the public that the issuing and the acceptance/collection of cheques will cease, effective from 31 December 2020.”
Before this recent announcement by SARB, there have been moves made earlier in the year by top tier banks in South Africa to scrap cheques. Amongst those who made these moves are First National Bank (FNB), Nedbank, and Absa Bank.
Diving into the overall payment system in South Africa may provide answers to the tiny bit of questions that may come to mind.
South Africa’s payment systems at a glance
In Africa and beyond, the payment industry can be said to be one of the rapidly developing sectors, as more modern payment methods are recently being introduced, and adopted.
The uptick of payment systems has led to the advent of the new-age fintech start-ups, many of which are focused on accelerating payment gateways in Africa.
For South Africa, the national payment system is a chain of processes that links the payment made from a payer’s bank to the payee’s. The overall goal of this system is for money to leave one bank and find its way into another. And it does help that the banked rate in South Africa is as high as 80 percent.
The South African Reserve Bank, which is the apex bank in South Africa, is the governing body responsible for the processes, systems, policies, as well as institutions involved in making payment possible.
South Africa has a wide variety of payment choices ranging from cash to cheques and electronic payments.
However, the light and nearly weightless paper cheque has aged fairly well and has been overthrown by emerging payment systems in today’s digital era. The digital era has provided more efficient, faster, and more reliable payment systems.
Amongst the widely used payment system in South Africa and many other African nations is Electronic Funds Transfer (EFT). EFT is the electronic system involved in the transfer of money from one bank to the other, without the use of paper.
EFT has been found to fill the gap which payment by cheque has. Besides the security lag that cheques have, ETFs have the other advantage of being the faster and more convenient payment method.
In South Africa today, payment has become less of a hassle, following the serial innovation hinged on technology that has been made in that area.
Why is SARB scrapping cheques?
Realistically, innovation is likely to send off some of the archaic methods and systems and the long-used cheque is an obvious casualty of the tech-backed innovation in payment systems.
The decision by SARB is one borne out of the numerous challenges associated with cheques, as it appears that its downside outweighs its benefits.
Amongst its downsides are the expense it incurs as an instrument for payment and more importantly, how prone it is to fraud. It has also been observed to have reduced drastically in its volume of usage.
The apex bank emphasised this decision as a necessity, due to the numerous challenges that are associated with the usage of cheques, considering also that its use and importance has declined over the years.
The apex bank mentioned in a statement that, “Between September 2019 and September 2020, the usage of cheques continued to decline at a faster rate, with volumes decreasing from 185,358 to 88,219 (52 percent less) and values decreasing from USD 314 Mn (ZAR 4.78 Bn) to USD 55 Mn (ZAR 842 Mn.”
In addition to the fact that cheque usage has been waning, the pandemic further accelerated its demise, as there was a marked decline in cheque usage, with digital alternatives increasingly adopted.
South Africa’s lockdown measures kept banks shuttered for several weeks and many “cheque handlers” would have been left with no choice but to opt for the other modes of payment available which are by far more convenient, faster, and even cheaper.
In today’s world, hardcopy cheques are being phased out, as there is already a strong push towards other payment methods built on digital infrastructure backed by software.
By a distance, EFTs have proven to be the most popular payment method as they accounted for 80 percent of the payment made for retail sales in 2019, with cheques now accounting for less than 0.1 percent of all payments in South Africa.
Not only are the ETFs as payment methods more efficient, but they are also more cost-effective and super convenient.
With this trend kicking off in South Africa, it may not be long before similar measures are adopted in other parts of the continent on the basis of the several similarities in the payment system that many African countries share.
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