The corporate treasury community spends a lot of time focusing on risk to their financial -wellbeing. A perennial concern is payment risk and the associated costs of managing numerous complex daily payments, often outside normal business working hours.
It’s a topic that’s likely to grow in importance as banks and regulators roll out the new rapid payment programme aimed at modernising the payment system and lowering costs while reducing risk. Called the rapid payment programme (RPP), this new payment rail is designed to offer 24/7, real-time, irrevocable, and enriched payments using ISO 20022 standard and proxy resolution.
Based on the United Payments India (UPI) system in India and the Instant Payments Ecosystem (PIX) system in Brazil, RPP (branded here as PayShap) forms part of the Reserve Bank’s 2025 vision to enhance financial inclusion and to promote cashless payments.
Why is RPP important for corporate companies
In a country such as South Africa, where between 70% and 90% of the volume of transactions is in cash, this represents a significant risk for all parties involved, from consumers to merchants and their banks, who bear the risk (and costs) of carrying, storing and banking cash.
A rising number of transactions takes place through credit cards and online, but this carries other costs and risks, including card and online fraud, delayed receipt of funds and the risk of payments being revoked.
RPP will also make low value payments (defined as transactions under R5 million) safer and more efficient, and bring them into line with high-value payments, which are mandated to go through the Real Time Gross Settlement (RTGS) system.
Achieving RPP
To explain how this will be achieved, we can break down the acronym RPP using the constituent letters, namely:
R for rapid payment (what we know as PayShap): Rapid payments allow for real time payment (under 10 seconds to clear) and 24/7 availability. Being available 24/7 is useful for businesses that operate on weekends or after hours. The speed of payment clearing and the irrevocability of the payment make operations more efficient and improves the client experience by allowing businesses to distribute goods and services faster (thanks to the real time confirmation). PayShap is faster than EFT and RTC (real-time clearing), which means merchants and corporates also receive their funds in real time.
P for pay to proxy: There are two advantages of a pay to proxy system. One is to register a more easily identifiable proxy (such as a cell phone number) for a customer bank account and a proxy resolution that gives you a confirmation of the counterparty before payment is made, without sharing their account details. As a corporate company you can register your trading name as a proxy, so when your customers pay you, they use your name at your bank (eg ABCTrading@XYZBank) to make the payment without having to capture banking details. Before confirming the payment, the customer will be presented with the registered and trading name, giving them comfort that the payment is to the right entity.
RPP will also make low value payments (defined as transactions under R5 million) safer and more efficient, and bring them into line with high-value payments, which are mandated to go through the Real Time Gross Settlement (RTGS) system.
P is for request to pay: Request to pay (RTP) enables corporate companies and service providers to send payment requests to customers and all customers need to do is to authorise the payment on their banking app, significantly improving the client experience by reducing the steps in the payments and ensuring guaranteed reconcilability (such as refence numbers, etc) for the corporate. RTP caters for multiple use cases, by allowing for flexible request parameters. These include either exact requested amounts, such as for a basket of goods where an exact amount is required, or a flexible payment amount, subject to a minimum, such as where a gratuity or tip can be added.
Linked to this is the introduction of a standardised QR code, which should make payments easier and more efficient, both to individuals and companies. The QR code can be static or dynamic, with the latter allowing users to prepopulate the reference number and amount, making it easier to issue and pay invoices for goods and services, while allowing users to reconcile accounts. Importantly, payments are irrevocable, which should be good news for recipients. The standardised QR code is still in its early stages, but other use cases are likely to emerge in time.
Cross border payments
The modernisation drive is also being seen in cross-border payments. Any company involved in international trade will know the administration-intensive processes of South Africa’s exchange control regime, such as the completion of balance-of-payment (BOP) forms.
With the new standard, BOP forms are prepopulated, making the process smoother while enhancing fraud, risk and anti-money laundering safeguards. Related to this are changes at SWIFT, the global banking messaging system that facilitates payments. Under these changes, SWIFT is improving cross-border payments by introducing beneficiary pre-validation and entity beneficiary pre-validation.
Conclusion
For years companies, individuals and financial institutions have had to accept long processing times and the risks and costs that go with it. With the modernisation of local and international payments processes, users – whether corporates or individuals – will achieve a kind of holy grail of not just a faster and easier to use payment platform, but also one that is cheaper. Furthermore, because of the interoperable nature of these processes, the scope for new use cases is significant.
Republished with the permission of Treasury Management International (TMI)
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