South African banks say they have little choice but to charge extra for processing immediate electronic payments between clients of different banks. In a single year, banks process more than 49 million of these premium-rate transactions - but quite how much banks believe this extra computing power and risk should cost clients differs greatly. At the extremes, the difference between the cheapest and most expensive fees for these transactions is as much as R42.50, a difference of 147%.
There are currently just two prominent types of online interbank payment systems in South Africa - traditional electronic fund transfers or EFTs, which can take money up to two business days to reflect in another bank account, and so-called immediate, or real-time clearing (RTC), payments, which transfer funds into any bank account within 60 seconds.
On the surface, there's very little difference in the complexity or technology required to process each type of electronic payment - but banks claim that this is not the case. Instead banks cite an increased risk of fraud associated with immediate payments, and in some cases legacy costs for developing the service, as the reasons that these bear a higher fee.
Quite how much more these payments should cost differs greatly, however. Some banks charge less than R10 for the privilege of immediate payment, while others still charge up to R50 for the same service.
And although not necessarily an exact calculation, with banks in 2019 collectively processing as many as 49 million of these transactions, according to the Payments Association of South Africa (PASA), even at the lowest median fee of R22.50 across all banks, together they may have collected around R1 billion in instant payment fees for the year.
Increased risk, individual processing, and recouping development costs
According to a Capitec spokesperson, the need to charge more arises from the increased risk of an electronic payment that clears instantly - and the inability to process these in large batches, as with regular EFTs.
"The EFT system is most frequently used and has been around for approximately 40 years. It is the slower of the two and has a lower interbank fee as payments are processed in batches. The RTC system, which allows for immediate payments, processes each payment individually. This however incurs higher costs resulting from additional operational requirements and risk monitoring services to prevent fraud," a spokesperson told Business Insider.
As South Africa’s largest digital bank, Capitec says it has decided to keep these fees low to reduce the risk of carrying and paying with cash - particularly when making large purchases.
"We also believe we have a role to play in the furthering of the country's digital economy through this affordable fee, which makes it an accessible payment option for millions of South Africans," the spokesperson said.
Absa executive Cowyk Fox says they too have seen the importance of lowering this cost. In March this year, the bank reduced its fee for an immediate payment from R65 to R10 - for payments under R1,000. Those over R1,000, however, attract a fee of R49.
"Immediate inter-bank payment fees cover the costs associated with inter-bank real-time clearing, as well as the additional fraud prevention measures we have implemented on this transaction type," Cowyk said.
Nedbank's Johanet du Plooy offered a slightly different explanation regarding the costs.
"Instant payments provided by the Real-time Clearing service, provide consumers and businesses with the additional benefit of immediate settlement of a bill or immediate access to funds. For this solution to be made available to customers, banks had to invest in development and ensure there are sufficient security protocols to process instant payments," Du Plooy told Business Insider.
Du Plooy does, however, expect the service, and its associated cost, to keep evolving.
"New developments in the rapid payments system and industry-wide solutions will continuously enhance the relevance and benefits of instant payments, including cost. Instant payments provide a higher value solution to customers which is reflected in the pricing approach. We do expect that volumes over time will start to favour real-time payments," Du Plooy said.
According to First National Bank's Yashen Singh, the bank charges higher for RTC, or what it calls Pay & Clear, transactions "given transactional limits as well as additional operational and fraud cost and risk", but that "given all the real-time options available to FNB customers; RTC constitutes a small portion of real-time options available to FNB Customers in these market segments".
According to PASA, South Africa pioneered the first interbank RTC payment system - founding members Absa and Capitec first implemented the service in 2006. Before this, real-time payment clearing was only available on an intra-bank basis.
Since 2006 most mainstream banks have adopted full RTC policies, which require inter-bank funds to reflect within just 60 seconds.
South Africans are also making more use of RTC payments. In 2019 the total value of all RTC transactions in South Africa topped R600 billion - with an average transaction value in that year just under R13,000 each, according to BankServ.
The volumes are impressive, too - in 2019 PASA says they increased by 60.2% to a total of 49 million real-time transfers.
Here’s how South African fees for RTC payments stack up at the five biggest banks:
