The Future Of Payments

Getting support for innovation programmes in most companies is hard enough, but how do you do it when you are a critical infrastructure provider for the banking sector?

That's exactly what Jan Pilbauer and his BankservAfrica team have been attempting to do as part of their #rapidpayments initiative.

What makes their effort all the more remarkable is the fact that a failure to deliver would impact millions of people, and their projects, at face value at least, appear to be at odds with the goals of their major shareholders.

So in this interview with Jan, you'll not only learn more about the vital role of BankservAfrica and how they are progressing with their big hairy audacious goal to digitise the R50billion cash market..., but it's also fascinating to learn some of the leadership tricks that have helped him gain support for these massive initiatives.

As always, a big thanks to our game-changing sponsor, Sybrin!!

They are a critical technology provider for organisations across Africa, and it is a real honour to work with them to bring this series of interviews with awesome game-changers like Jan to you.

Transcript - (Generated using Otter.AI)

Game Changers - The Future Of Payments


Marius Mare, Colin Iles, Jan Pilbauer

Colin Iles 01:33

Where should we start? Well, let's I suppose start with an intro show Jan and I want to set this up and just say in 2019, you've joined Bankserv in a role, which I found quite interesting. Chief payments and Innovation Officer, I kind of look at infrastructure providers and when they say they've got innovation officers, I sort of take a step back and say that doesn't normally happen. But you've come from abroad. You've started off in Czech Republic, you've worked in lovely places, both there and then across into Canada and you've taken this decision to come to South Africa in 2019. Could you tell me why and use that to sort of, you know, frame the role that you've got now as CEO.

Jan Pilbauer 02:08

So good afternoon, everyone. Now, of course, the bar is high, because you all talked about the personnel how great the webinars were. And now we are stuck with me. So I'll try my best. But very nice to be here. Thank you for the invitation. For recently, as they made me a chief payments and innovation officer, and maybe they were also worried, so at the end, I ended up being the CEO. But why Africa? Why South Africa, as I mentioned, you know, I am really passionate about making a difference. I love working for an organization, which doesn't only focus on, you know, creating shareholder value, but also making a difference. And South Africa not that long ago, you were very, very advanced with payments, many payments, world firsts actually happened here. And I think the Western world sometimes, you know, they kind of have an idea of Africa, and they think about m PESA. In Kenya, but they are so there is so much more to Africa. And I kind of felt you know what, hopefully I can help a little bit with my with my peace, and we can show the world how payments and financial inclusion is actually supposed to be done. So that's, that's what motivated me and a bit of an adventure for the family as well coming from boring Canada where my boys were.

Colin Iles 03:27

Okay, well, on behalf of everyone, welcome, you're still here, you've been here for a couple of years, so you're obviously enjoying it. What I want to get through today is a bit about Bankserv and your role, dig into the rapid payments program, which is ongoing and meant to be being released in part this year, I believe and find out if this is indeed going to happen. Or maybe I missed it. And it just wasn't advertised. Your vision for 25 and beyond to see how far this can go. Obstacles to change, there must be lots in the South African context. In fact, any country is going to struggle with the ambition that we've talked about before this call. And then also I want to really dig into some of the threats and the opportunities of blockchain as we're going through this. Hopefully, some of the people on the call are gonna be thinking Hold on a minute. But we can do this with defi already. Why do we need these central authorities to go and organize this for us, it's already out there in a very different ecosystem. And if we've got more time, we can go into other stuff. And in amongst all that, trying to make sure that we get the questions from everyone on the call through to you as well. So we're not going to be at all time pressured, we will finish on the hour in 52 minutes. So let's start what is Bankserv, what's bank serves Rob,

Jan Pilbauer 04:34

The name may give it away a little bit. But we serve more than just the banking community, we serve the payments, payments ecosystem, and we are kind of this invisible organization utility, not for profit, we call ourselves neutral behind the scene. But yes, the fact that you receive your salary or when you tap or, you know, pay with your card, in most cases, we are behind that when this annoying OTP comes on, take a lot of money are trying to make ecommerce transactions in many cases, it's also us, and unfortunately, also the debit orders. So yes, when the money is taken away from you, that's also us behind the scenes. So if everything goes well, I don't think anybody needs to know about us. But when things don't go, well, the economy feels it, I usually explain Colin, how it would look like if we were not around. And you know, it would probably still work. Like you know, in the past, the banks were not interconnected, they were all working themselves in a closed loop environment. So if we were not around, when you want to send money to someone, you will have to ensure that they transact with the same bank, otherwise you couldn't send them money. When you want to withdraw money from from an ATM, you would have to find the ATM, which belongs to your bank. And of course, when you pay at a merchant, the merchant would probably have 16 points of sale or how many points of sale terminals. So based on the cards you brought, they they would use the right one which talks to the right bank. And that's what we changed. So BankservAfrica is really about interoperability and creating these bridges and connections between these closed loop environments which which exist in the payment space.

Colin Iles 06:21

So you're a critical part of the infrastructure, then you're basically sitting there and bridging the transactions between the banks, and SAMOS the what would you call SAMOS the settlement system for the central settlement system, you know, for, for the central bank, and you're a critical part of that framework in terms of the transaction messaging and making sure we've got settlements and clearing of the millions, hundreds of millions of transactions which are being published and processed on a daily basis, is it and is it also correct that most of the transactions in terms of volume is the retail market? So ecommerce, you know, ATMs?

Jan Pilbauer 07:00

So we only started the retail market and as you mentioned, we processed around 4 billion, 4 billion transactions a year, which accounts to I think, like 14 trillion in terms of value rand value. So the retail is majority of volumes, when it comes to the payments ecosystem in South Africa, of course, SAMOS or the high volume system, the settlement system, majority of value gets kind of cleared and settled there. But the transactions are the number of transactions are relatively small. And as you said, you know, we are critical. And it's kind of exciting to work for an environment, which is mission critical, because in the first few days of the month, when people collect or receive their suspect grants and stuff like that, and you see the big lineups at ATMs, which is, by the way, something we are trying to change, we process around 300 transactions per second, every, every every second in the morning. So when you think about it, if we go down for a couple seconds or a minute or something, quite a few people get upset that they cannot get the money or they cannot pay for the things they they want to pay for. Yeah,

Colin Iles 08:07

okay. That's interesting. So I'm assuming you've got hosted platforms. Just as an aside, I don't think you'll have moved to the cloud yet. Maybe we'll come back to that later, then if you if the latency there is a little bit too risky. But from my experience, things seem to be working quite well. Because when I've traveled and worked abroad, and obviously, if you don't, I'm from England, originally, comparing my experience in South Africa, it's been a net positive in many ways, especially on payments, it's relatively easy, the bank seems to get on with you and collaborate well together so that we can draw cash from ATMs from other providers without having unnecessary charges. In most cases. If I want to make a payment to someone, for most experiences, I can do it immediately. Or at least from my perspective, it feels like it's immediate, and it's going into someone's account. You've already got platforms in place where we can do QR scans, you know, snap scan, and zapper and a bunch of others that are allowing us to go and have this sort of easier processing at the till. There's just so many upsides, I think, you know, we can send messages to each other via telephone numbers and already go and initiate a settlement if you want to pay someone the road. So so we're not quite up to sort of, you know, what would I say WePay in China levels. But on the other hand, we're well ahead of United States and most parts of Europe and the UK, I'd say is that your assessment?

Jan Pilbauer 04:14

I think you should join our marketing department. I probably cannot afford you

Colin Iles

I'm waiting for the guys to go complete rubbish Colin. It's a complete disaster.

Jan Pilbauer

And listen, that's probably one of the one of the issues sometimes the Western world may have that. People think in US, Canada, they feel that, you know, they have everything the best. And I experienced exactly the same thing. When I moved to Canada and I wanted to pay for my rent. They asked me to write a check. That was, let's say, 15 or 18 years ago, I didn't know how to write a check coming from Europe, right? There are many things where Canada US are significantly behind when it comes to payments

Colin Iles

3 days settlement in the US with a 20 $25 charge.

Jan Pilbauer

Yeah, so listen, South Africa, is doing really well. I mentioned that there are quite a few areas where we were the first like when it comes to real time clearing. We were actually even before UK, so we were two years before Faster Payments actually came live in the UK. I think when you are looking how payments should be done these days, you really look at some of the Asian countries, even India, China, you mention it there are of course, some some downsides. And you cannot replicate, the experience being sold somewhere else, say to South Africa. The only caveat calling I would probably put is South Africa, as you know, has two economies right? People living in developed areas, you know, people around Sandton and Cape Town, we pay very comfortably we don't have to carry cash around the acceptance is relatively high. But based on our research, this accounts only for 15% of the overall transaction. So when I talked about 4 billion payments, which are happening, you know, through our systems, and we don't see everything, but majority of that those are the formal digital payments 85% And it actually comprises of only 15% of the overall payments happening in the country. Why the payment system in South Africa works is thanks to cash 85% of transactions are cash. They are usually small value transactions for day to day necessities. But it would be wrong from me to say that today South Africa is served well and everything is working well because vast majority of South Africans and transactions are actually happening only thanks to cash by the central bank. We have so

Colin Iles 12:01

So I'm glad that you brought that up because Is this why rapid pace payments has been developed. If you start from the top, I'm assuming there's a policy decision that starts at governments and feeds through into National Treasusry and a fair amount of work gets carried out. But when we talk about rapid payments, what was the sort of underlying goal that we're trying to achieve?

Jan Pilbauer

No, you are you are absolutely correct. So of course, it's fitting the it's fitting the bill of the vision 2025, issued by the by the Central Bank, the payment association of South Africa, also had a vision, how payments should be done in the future, they call it project future, maybe we should all get kind of help from you as a marketing person, because RPP doesn't seem like the most catchy name and

Colin Iles

future is terrible.

Jan Pilbauer

But listen, so there are multiple things because I truly believe that financial inclusion can only come hand in hand with digital digital inclusion. So the Digital Agenda for South Africa. I'm not saying that if you have a smooth and friction free payment system, your economy will start doing better, thats usually when you look around the world economy, which is doing well has a well functioning and friction free payment system. So our objective is really to build something, which will be an alternative to cash, right, we don't want to compete for these 4 billion transactions, where I think broadly, everybody served quite well, we could do better, we could probably, you know, be cheaper and all that stuff. But when you look at the remaining 50 billion transactions, which are happening, the long lines and the queue, or the long queues at the ATMs, that's something we are trying to change. And it requires a completely different mind shift, if you are really competing with physical, physical cash, and you want to give people the trust they have in currency and banknotes into the digital world. And that's what we are trying to do as part of the RPP.

Colin Iles 14:01

So on the build up to this, and when I was looking at it, I thought to myself, I thought I hadn't had before I was thinking should payments actually be human rights, I don't want to be too extreme here. But you think about how important payments is you cannot live life, you can't do anything without the ability to pay and receive, whether you're in the informal sector or in a massive conglomerate. And then you think about the difficulty if you're in the informal sector of making payment, the cost and the time that you waste. And I sort of came to the conclusion that it's probably as important if not more than just general access to data and the internet. And so in a perfect world, you can imagine it should be free, it should be instant, it should be simple to understand, it should be available for everyone to access time and time out. And I'm going to throw in another one as well. And I say you should try to access it in some way, shape, or form, even if you don't have a bank account. Or if you haven't gone through a FICA process with a proof of residence. Because if you want to go and empower people to make payments, the more blockers and barriers you put in the way, then you're not really achieving the goal of democratizing this access to data so so Is that roughly what bankserve are trying to work towards with your partners across the board or is that a bit too far?

Jan Pilbauer

Oh, and of course on the side, we will also solve the world peace and world hunger. So you mentioned a lot of things be as a small but proud organization. Here in Selby, Johannesburg, South Africa, we have big ambition. And we are definitely driving our it's bringing payments in a more comfortable, simple to use way. Because exactly when you describe all these things people need today in order to pay cash is kind of the default to go. I wouldn't I we can have an argument if payments are more important than Wi Fi access to Wi Fi access to data and stuff like that. I think it probably goes hand in hand. I don't think you can have one without the other in today's digital economy. But you are correct. me I'm a payments geek. Right? I wake up in the morning and I love payments. I think about payments all day. But you guys don't and I'm not upset, right? You You only pay and it's kind of a painful process. Because you want goods you want services or you want something, the payment is just the means to an end. And it should be invisible. It should be like Wi Fi. Right? It should be accessible everywhere.

Colin Iles 16:20

Okay, so you're working towards that. And I'm going to go back to one of the words that I used, which was free. All right. Now, I don't know if a lot of people realize that payments we actually do pay for across the different channels in one way or another. There's no question about that. And one of the organizations or the osets of organizations that go and make a lot of money from this are our dear friend the banks. Now the banks, they're your shareholders. So as you're pushing forward on trying to go and make this a much more efficient, frictionless, cheaper service, how have you got the banks on side again to support this because it feels a bit of a juxtaposition where they might not be aligned to your interests because where there's friction you can make profit.

Jan Pilbauer

True to any facts should actually creates kind of benefit for some. But it may be a little bit short sighted to be just betting on friction because as you mentioned, if somebody comes up with a solution, which removes the friction, you lost your you lost your business model, just a few comments, we as a company, and that's why I love working here. Our purpose is not to make money for our shareholders, our purpose is actually to enable Broad Financial institutions to better people's lives in Canada, that's in our mission statement. That's why many people actually joined the organization. That's why I joined the organization, we have five shareholders. So the four large banks, and then there's a group of smaller banks, who are, you know, a minority shareholder, we don't pay dividends, we don't really give that much benefit to the shareholders. Even our board is actually completely balanced. We have five independent directors and five shareholding directors and the chair is independent. And the reason for that comment is because we need to serve a broader community of customers than just the shareholding banks. Even today, you know, our customers, we have many more customers than, than the five, five shareholders and how we are selling it. So you have two models which have been applied around the world. One is that you ask the government to push it and they cannot issue a directive. And they say, You must do this, otherwise, you lose your license or otherwise you cannot do this. I came from Canada, and US and North America, generally, we don't like the approach Europe usually takes where things are, innovation is happening through directives, I believe more into market forces. So what we try to do, and that was, you know, almost four years ago, when I joined in 2018, late 2018, we actually build a case business case. And exactly as you mentioned, you know, in today's world, I think it's for free, and we explain to the banks, okay, you may be making some money here on the 4 billion digital payments, which you process for your customers, if you are actually losing a lot of money, managing cash, because managing cash is extremely expensive. And if you start thinking not about, you know how the banks compete for the small pie of 4 billion transactions, but if you increase the pie into 60 billion transactions being the addressable market, it completely changes the dynamic, especially if you say, eventually, there may be less cash in circulation for you to cater for and less risk. We all see, you know, the cash in transit cars being blown up, people actually die because of cash. So the business case we created, it doesn't work for every single banks, but for industrial industry level. It, it started making sense. And that's why we are moving, I would say a little bit faster than some of the other countries where it was just a regulatory push from the government.

Colin Iles 20:01

All right, so the the banks, for now, I believe they are relatively in support of what you're trying to do. It's quite clear that fidelity and ADT aren't, because if you're successful in moving this 85% into digital and cash in transit moves away, they must lose a fairly significant revenue stream on their sides. So anyway, it's been several years in the making, I've seen that you've collaborated with the banks, and a bunch of others, is i=t PASA as well, you've actually flown abroad, you've gone and met people across Asia. And I saw there's some quite, you know, constructive, detailed reports from IQ. This has all led to the program, which was kicked off a few years back, and here we are in 2022. And you're about to release three important updates as part of this rapid payments program. Do you want to just explain what they are.

Jan Pilbauer

Sure, four years in the making, and you're right, I actually forgot that what we did with some of the key stakeholders, we actually brought into Southeast Asia. And it was interesting to talk to some of the some of the people there, what they did. And, you know, when you talk to the Indian stakeholders, right, with 1.4 billion people, the scope of change, there is incredible. And of course, India is one of the countries where the where the government push very, very hard, so it wasn't necessarily a market driven approach. But it helped because we heard them, you know, when you can, when you do something, when you get into this mission mode, you can make wonders, and you know, I was new to the country. And then they were telling me, you know, Nelson Mandela's quote, everything seems impossible until it's done. And that's kind of where we are. So listen, guys, I don't I don't want to again disappoint anyone because what I'm going to tell you that we are introducing may sound like in 21st century, it should not be a problem and it should already exists, right? I can send an email from any place in the world to some other place in the world in a matter of seconds. Or the fact that we will introduce a better payments experience in South Africa. Rika compared to that sounds, sounds like maybe not as ambitious. But I can tell you based on where we are, it's a huge undertaking. So, there are three features, as you mentioned, which we are bringing to the market. And what we believe is that these features will be used by financial institutions, banks, non banks, and everybody else, almost like little functional blocks. And you will be able to combine them with some other, you know, small blocks, which we will also introduce to provide a customer experience of your own, because that's where we want the competition to happen. Three blocks, kind of the Lego bricks which we are, which we are developing on the industrial level, our first one is something called real time clearing or rapid clearing. And again, it doesn't seem like something super revolutionary. But we will ensure that the experience you have when you pay with a bank note is translated into the money movement in the digital world. So we as the operator in the center, and we've never done it before, we will force a common user experience. So regardless, if you do it with one bank or another, when you decide to send a rapid payments, payment, and by the way, the name will be changed, we will ensure that within 10 seconds, the receiving bank confirms that they got money, and they make available to you on the bank account. So you can use it, you know, the 11th second to pay for something else, like you would with a cash. And that's something which doesn't happen today, right? We in many systems, we don't enforce this form of SLA, that if we don't hear back from the bank, within 10 seconds, we don't sometimes cancel the payment, it's kind of keeps ending or it's hanging, that's not the experience, which will be in real time or rapid clearing because we will enforce Within seconds, the money will go through it's irrevocable, you can use the money or the payment fails, there is no in between. So again, doesn't seem like much, but it's a bit of a game changer that you don't have to send something in advance, pay in advance in some cases, and then the money kind of happens later. Know when you decide to pay you pay, and in few seconds, it could be on the other side. That's number one. Number two, is I don't know how much you love exchanging the bank account numbers and branch branch codes and all that stuff. Right? That's kind of difficult. If I want to pay you Colin, I need to ask you for for bank account number and for your branch and bank and all that stuff. What we are creating, we call it a proxy. But basically you will be allowed as Colin to register something which people probably know about you being if your cell phone number, being with your business name, or whatever you decide to use. And then you can link it to the bank account of your choice or the store of value of your choice. Because in the future, as you mentioned, it will not be only bank accounts. And then when I need to pay you how the experience is going to happen. I already have you on my cell phone because you call me way too often Colin. And I say I want to pay this cell phone number, right. And when I say initiate this payment, it comes back from the bank, which you registered with and says hey, it's Colin Iles Is it the guy you are trying to pay off? I am, and I will send the payment. So we are creating this better addressability that people can send the payment without necessarily knowing too much information about you, but something that's publicly available. So that's number two. Again, it's kind of a more sophisticated digital address book, but we believe it will change and change quite a bit the payments experience. And the last one is called request to pay. And I think people haven't completely figured out all around the world how powerful that feature actually is. And the idea is that you can request a payment from someone so for example, you know, if you if I pay for dinner we had last night I can kind of send you a request to pay reminding you Colin, you owe me was a cheap dinner 100 rand for for the beer. And you just when it pops up, you just say yes or no. And in one click and with proper biometric authentication, you you issue the payment. So it's kind of one use case, but it can be used in E commerce, where you just put your cell phone number and it sends you a request to pay which you just confirm on your phone or on your cell phone it can be it can be done also in the physical point of sale. So those are kind of the three features there is a lot underneath right? There is a lot of payments jargon like ISO 2002 rate data coming back and forth, exchanging fraud information to protect your money. But those are the three features which we are bringing to the market which we believe will be used finally to change the payment experience of today?

Colin Iles 27:10

So we've got instant interbank, which I'm not 100% Sure is necessarily helping on the 85% cash movement into digital. I'm 100% Sure, it helps the banks to reduce their payments, settlement, credit risk and other risks running the process. It's is a good thing. It's good thing, but I was super excited about the next two, I thought the request to pay I can imagine myself, particularly living here in Joburg, with city of Joburg, continually asking me to sign a mandate where they can steal from my account, month in month out. And not going through that process and saying, I want you to approve every transaction that you're trying to go and take from me if I've got that, right. I really liked the sound of that. And I really liked this

Jan Pilbauer

Colin, can I ask you this one because I spent a lot of time thinking about payments, right. And that's both in Europe, in Canada, and now in South Africa. Because in Europe, being Czechoslovakian, and we don't do debits exactly what you said, if there is a invoice which comes it is a QR code, I scan it, and I pay it or I receive kind of a request to pay ideally. We are still working on it. As it doesn't exist. And that's what I came with. In. In Canada. When we did the big modernization of the Canadian payment system. We ran all these road shows across Canada, it's multiple multiple time zones. It's a large country. And it's funny because he always wants to watch what the millennials are doing. It almost feels like millennials, they know what to do. So you watch them as he's still taking elevator. He's not taking stairs. Oh, my goodness. So you we spent a lot of time talking to Canadians about the experience. And I suggested like UK, I think UK proposed something similar, that we should get rid of debits, right? The debits are kind of dangerous. There is debit order abuse, if we don't manage it well and stuff like that. Canadians, they love their debits, we said don't touch our debits, I don't want to be late with my payment because I have forgotten. Of course in South Africa, one of the world's firsts is called early debit orders. I know we now replaced it with debicheck. But the idea here is that you try to get the money even before it appears on your on your bank account. So I don't know what do you think South Africans? Would you? Do you think they like their debates? Or is it just kind of the necessary necessary evil? Or, that because people are quite exposed? People are trying to get the money before you deciding how you do your cash flow management.

Colin Iles 29:40

Yeah, so if we can, I mean, people just put that on the chat. Unfortunately, it's my fault. I think I've put the chat. So only the hosts of the panelists will will see but I'll copy paste the ones that are interesting back I mean, my cents on that is it's a question of trust. If you're in Canada, direct debits wonderful. You know, if you're if your service provider, whether that be for your energy needs or rates and taxes or 1001 other things, your subscription to a certain service, if you trust them, that's fine. But unfortunately, I think in South Africa, there's so many examples. Now it seems to be the money gets taken. And I hear this across the board, it can be people getting frustrated, because they feel their data has been taken from them, you know, from the cell phone provider, and they haven't been able to go and get any recourse to get it back. It's so many people have said the electricity or the water bill has just been massively inflated for some sort of problem. And it's really hard to get that money back whether you're in the right or the wrong. And so certainly when when the bill comes through, and it's significantly more than you expect from whatever that service was to be able to approve the payments and not just have it whipped away from you, I think is positive. Another one which pops up I don't want to go too much into this, which I think most people may not even be aware of. But it's incredibly frustrating. And it's certainly a little bit different in South Africa, is SARS can just take the money, as soon as they've calculated what that tax bill is. There's no debate, you'll have signed a form that somewhere or your terms and conditions with your banking organization have been adjusted, that's money's gone. And it's a lot harder to go and get the money back and have that conversation when so I think there's just a question of trust that goes with it. I don't wanna go too much on that, though. We'll come back and see what people have chatted anonymous as given a really cool question. How's the instant payments work? And will it be API based? And how are each the banks building and Hey,

Jan Pilbauer

okay, now we are talking technical. I didn't speak over you. But I have a technical background. So of course, I got excited. One negotiable when we started and by the way, that's also how we because you can argue we are a company which is a utility. We are not state owned utility, but sometimes there's still a connotation that the utilities cannot be run in a modern innovative way. And maybe some of them struggle and we definitely struggled as well. We are celebrating 50 years today. So that's or not today. This this month in June. It's it's coming. So we have been around for quite some time, which means we have some legacy, we have some inertia which we are working with. And one thing which is interesting to see is when you work for a company, which tries to be innovative, and some people told me, you kind of have to convince the CEO, and sometimes the board, it's a good idea to try something. When you work for a network, like us, I need to convince 16 or 20, CEOs of different banks, that something is a good idea. And that usually doesn't mean agile, right, trying to convince 16 organizations, but when the organization with different objectives, that doesn't translate into speed. So we tried to do something very different. And by the way, the rapid payments program, it wasn't about rapid payments, it was about rapid programs initially. So the idea was that we will do the program fast, not necessarily the payments fast, because that's kind of implied, but what we did, and I feel that's kind of something the new technology allows you to do, we started prototyping. So we set up few API's in a sandbox. And we basically brought technical people from different parts of the of the industry to play. And we created kind of more, you know, mobile apps and all that stuff. And we created excitement, because when you create excitement that some of this new thing is possible. It just moves faster. Afterwards, it's almost like the 3d printing completely revolutionized the manufacturing, because you can try things relatively quickly. I feel in today's world, you can do a lot. So as part of the pilot, there were a few non negotiables, we learned, right, one, APIs microservices all the way. And even when we were looking for some technology partners, people kind of tell you, yeah, this is microservices. But no, I don't want one macro service, which you call a micro service. No, we want modular systems. We want API's completely, we want cloud ready or cloud native. That was another requirement. So yes, API micro services, the platform will be hosted in the cloud. And that wasn't an easy undertaking, because we had to convince the regulator, that the national payment system can live in the cloud, they are in the testing phase, as I mentioned, in the market, acceptance that it's going to be in the cloud. So we are really using most of the new modern technology, which is available. So you don't have to rebuild, you know, the redundancy, like you don't have to think and spend time how I'm gonna have, you know, cold and hot copy. No, you are completely horizontally scalable in the cloud. And you can focus on the value you are actually bringing for your customers, not the not the underlying underlying infrastructure. That was a big learning for us, we'll, we'll definitely take advantage of it also our other products. So

Colin Iles 34:57

what's the vision looking forward, though, because this program started four or five years ago, these building blocks of the first releases, let's call it fun, they open up some nice opportunities. But actually, the infrastructure you've created, the API enabled micro services, cloud based is really what should be exciting. So open up opportunities for third parties to come in and offer products and services and solve problems on this this marketplace in a standardized way. What are you hoping happens over the next two or three years either with projects you're running or the opportunities that it opens for third parties?

Jan Pilbauer

Yeah. So listen, I think one thing we never get right as the payments experts is that we don't make things easy for you to use or consume, or for the end users, for that matter, right? Even this idea that we sell different products based on we even call it that rail, which is transport, right. It's a card payment. It's an EFT payment, that debicheck payment. Like nobody thinks that way. Nobody wants to think that way. Right. And sometimes I use the example that post office or postal service, and I know in South Africa, it's a little bit different. But in most parts of the world, even post office, when you go and want to send a parcel, they don't ask you should I put it on a diesel truck? Or should I send a pigeon with it? No, they ask you, does it have to be there quickly? You know, is it valuable? And you need to ensure it and make sure that you always know where it is. And that's the language I think we will need to start talking about as payments people, right? You don't care if something is a bac payment, or if something should be a card payment. What matters to you is how quickly it does. Do you need it on the other side? Is it real time? Or should it be you know, today, and you can wait for a few hours and of course it probably makes different commercial models which people will build on. And that means we have a whole strategy about it, which we call BankServAfrica. 2.0 You could argue that with 50 years of history, maybe we should be a BankServAfrica 5.0 But we are moving to 2.0 and the idea is exactly what you described. We will have technical platform. And now we have multiple products, we will not just migrate there, but we will look at them. And we will kind of take the pieces take advantage of the of the new platform, I don't want to do just lift and shift and move something to the cloud for the sake of moving into the cloud. No, we will kind of expand the functionality of this platform to start using batch, actually, even with the proxy, right? Why do you kind of cannot use proxy also, for your EFT payments debicheck, right? Debicheck, you talked about the trust that we took his time to fix the debit order issues, and all of these things we will be doing over the next three to five, maybe seven years, you know, these things don't happen overnight. EFT has been around for decades. So it's gonna be a bit of a journey. But the idea is to reduce the cost increase efficiency and increase security. And one last thing, Colin I just want to mention, you know, what it means kind of for the broader ecosystem, we, we work in a heavily regulated environment, right? Who can hold deposits, has to be a banK, that's where we stand currently in South Africa. And to be honest, and you saw it, somebody asked around India, you saw it also, in other parts of the world, that being a bank or holding deposit, it's a difficult job, because regardless, you know, who you are, you should be regulated quite quite strictly, because people don't want to lose their money. So what we what we are about with around this new platform, we want to make sure that this platform where the money moves, is actually very, very secure, right, then whoever is the regulated institution being at a bank or non bank in the future, where the money kind of moves or the money is held, and then they move to the other store of value. That will be very, very heavily guarded. But now there will be some non financial messages, API's, right? We mentioned the request to pay the proxy, and all of that stuff can be probably initiated also by not only banks in the future. So what I see us doing is this platform, which orchestrates in a very secure, risk managed way, how these transactions and these interactions actually happen. So we want to be an orchestration industry platform, where we ensure that the money moves eventually, that you don't have to worry about right you kind of wait for somebody to pay or you do do this business like requests.

Colin Iles 39:34

Alright, so here's, here's a great question, I think very important from Andre Hugo from spot money here. Do the fintechs or anyone for that matter have to work through the sponsor banks to access these API's? And are they going to be able to work with you directly? And I think that's such an important question. Because, you know, is it allowing people to a proper free open marketplace, you know, the same way I guess you're open banking is over in Europe, or we still constrained, you know, picks up on this fact that you said, we still have to go through banks to keep deposits.

Jan Pilbauer 40:05

That's that's the current regulation. So we, we will offer pretty much any flexibility because anybody who is allowed to call an API will be able to call an API. We just argue even today, Colin not all our API's are only open to banks, I mentioned we are called BankServe, but we serve a broader community, we have the system operators, we have T triple P's, there is actually a designation called designated clearing system participants. So even a non bank can actually go to a licensing process, not too cumbersome and get a license to deal with us directly without without the sponsoring bank. So there are multiple kind of avenues. The idea is and that was clear indication by the regulator, they want to make it more open. But what needs to happen Colin before that, that is introduced something we call activity based licensing or regulation, so they cannot license you and regulate you based on who you are, but more what you do. Because when you look at payments you have you mentioned a settlement the clearing before that it's payment initiation, you can have proxy requests to pay, there is a different risk involved with every single step in this payments value chain right. So, when it comes to the clearing and settlement, probably the regulatory burden should be the highest, but for some of the others, and the regulator already indicated there will be some other licensing people will be able to add and they will be able to play in that activity of the payment. So we build it very flexibly. But the regulator will have to make some of these changes to to change the current environment. But even today, it's not just the banks, there are many, many options how you can how you can talk to us directly.

Colin Iles 41:50

You say the regulators are going to have to make changes Have you have you found them quite willing to go and listen to different market segments and been actually able to go and okay, it's a regulator it's not going to be super quick. I'm not expecting Months. But do you find them quite open and engaging with different stakeholders to go and look at putting new regulations into go and make it a freer, more open system for people?

Jan Pilbauer

Listen, I'm not gonna be bad mouthing SARB here. But I also I'm generally a fair person, I am really happy with how the South African Reserve Bank and the payment association of South Africa but mainly the South African Reserve Bank is pushing this program. I don't like when this when the central banks are too pushy, that they kind of prescribe what needs to happen. I would also like the model, the North American banks sometimes take central bank sometimes like, let the market figure it out. Assad was clear what they want to see. And they were also clear that if it doesn't happen quickly, they will step in, they are willing to have a dialogue. It's not easy, Colin, you know, to change a law and regulation, right, there are a lot of kind of steps you have to go through. So maybe it's going a little bit slower than the regulator's themselves have liked. But I feel that the balance between you know, listening to the industry and pushing is pretty good. Actually, you're in, in South Africa.

Colin Iles 43:14

So you said that, and I've said it already. But I said again, you said, you know that a key requirement is that you have to have an account or deposit with a bank, and then you're sort of you can enter the payment mechanism one way or another. There is, of course, one way to solve that problem. And that's via blockchain. This idea that the bank holds my deposit, why on earth do we need that I can sit here and use any number of platforms under this kind of, you know, this veil of defi as they call it, and sit there and say, using this smart contract on Etherium. This is my account, which I own on this distributed network, where everyone is playing very nicely with each other without a central authority. And if I want to pay Jan, I'm gonna pay you. And I can go and organize this and orchestrate it in a way where that payment can be me clicking a button to make the payment to you. Or it can be something that's quite intricate through the smart contract. So certain circumstances and events have occurred, which in turn will initiate the payments. So for example, escrow is an obvious one, if the house suddenly completes, and the lawyer clicks the button to say that the deeds office has been updated, and there's no problems, bang, let's go and release that money from this particular account, which we've created, we can do that essentially for free. And obviously, we're seeing lots of organizations trying to create this infrastructure, there's 1000s of them. You started this program, before we really saw this kind of idea of decentralized, there was Bitcoin. And there were people, I think, at a sort of niche level starting to talk about these things. But it's exploded over the last two or three years. What is this going to change how your program operates? Is there an opportunity for you to bring these aspects into what you're doing? Basically, how are you going to deal with this? Because it feels like there's a massive opportunity here? Or maybe it's just hype?

Jan Pilbauer

Colin If I knew the answer, I would, I would probably have a silver bullet for many, many things. It's an I've been playing with Blockchain for a long time, actually one of the first Central Bank, Blockchain projects called Jasper in Canada, that was kind of our idea, we just sit down around around the lunch table, and we came up with something. It backfired badly. And that's probably for another for another story for us. But the problem I have I always kind of convinced myself of something and then you know, it takes a while until I convince myself of something else right? Because we all learn as the as the situation evolves. So few things on on the topic of blockchain. So first of all, I think cash or currency will evolve. So there is a big discussion about a central bank digital currency. And by the way, it doesn't have to be blockchain it doesn't necessarily have to be a digital I'm sorry a distributed ledger technology of sorts. But I believe like there was a switch from you know, currency where these heavy coins had, you know, precious metal coins, which was quite difficult to carry around. So we be swapped for banknotes, right paper, or it was a bank that was kind of backed with gold now. It's just based on the trust you have in the state and the central bank, I feel that next generation of currency will be some form of a digital currency. And I'm a recovering central banker. So it has a lot of implications in terms of liability and how this gets distributed into the retail market and all that stuff. I don't know. That's that's potential. The blockchain overall, as you mentioned, you know, there are very good use cases when it comes to the delivery versus payment right, you are expecting something and you have to pay for it and kind of who does it first and that's where you have escrows and stuff like that. There are probably other methods where you can do it, but it seems quite quite efficient. The only problem with kind of a blockchain technology if you are dogmatic that it should be uh you know permissionless blockchain where it's kind of self regulated and nobody has a say there is no central entity which can control the blockchain. The problem is Bitcoin, right? Bitcoin hasn't taken off because there is no 1 800 Bitcoin you can call if something goes wrong, that doesn't exist, then you have a kind of tendency to say, Okay, let's create a permission blockchain like your Etherium, or hyper ledger or whatever these technologies are. And then you kind of give a little bit more power to someone to kind of resolve conflicts or do something a little bit more than the others. And I debated, why don't you ask this person you turst to do a little bit more? Why don't you actually give them the rights to trigger the payments or manage their own own database? So they'll see what we are doing in terms of RPP? To answer your question, they are playing with some of these things, because for example, the proxy, you know, where the address book is kind of hosted and how its distributed, we build it on our distributed ledger technology. And it's more future proofing than anything else, because probably at the beginning, when we go live, we will host nodes, and they will be both hosted by us, right. But it's more future proofing than in the future, when we can kind of distribute some of these databases or Ledger's to other participants, it creates more efficiency, it creates kind of different way of working. So that's one thing we've done. The second thing, and that's more my crystal ball, I started the discussion today with this idea that we needed to connect the closed loop or interconnect the closed loop environments of the different banks, right. So you don't have to have multiple point of sale terminals, when when somebody comes in and wants to pay. I feel even if bitcoin or any other CBBC, or stable coin actually picks up, it will be very hard to make one close loop which would serve everyone, right. Like the example with the banks, it's unlikely that there will ever be one bank, which everybody where everyone has an account, and they do everything there. Where it becomes complicated is when you need to kind of go out of this one island being at some form of a blockchain or cdbc, to another. And that's where I see the role for us. Because that's what we do. We create kind of this interconnectedness of different islands when people need to move value from one to another, what the value is, if it's commercial bank money, if it's loyalty points, if it's good knows what people are willing to keep their wealth in, I think we as clearing houses, we will have to find a way how to do clearing and settlement across these environments ourselves. And it's not trivial. I sit on the W3C, which is the body governing internet, they have been trying to solve for the inter ledger. So basically interconnectivity between blockchains for quite some time. There are a lot of smart people. They haven't still quite cracked it yet.

We'll see. We'll see what happens. So I feel we will not be disintermediated. Immediately, Colin, I may be completely wrong.

Colin Iles 50:21

Well, let's see. Let's see how that develops. Okay, as always happens, some great questions are coming in just when we're getting to the close, we'll do what we can. I think for the specifics on the TPP DSP requiring a sponsoring bank. Following on from Andreas question, I think some more questions from Andre, we'll try to pick those up. Separately, perhaps. So if anyone wants the answers to those email me, I guess they're the sort of things that potentially should be published on the website or in a blog, there may be some demand to actually tell that so it won't answer that one now. From what have we got here? This one I quite liked from Nandi. I don't know if you can answer this one quickly. But give it a go. Doesn't matter what you're doing in your space. If we don't sort out FICA you're hardly going to democratize access to making payments. What's the is there a possibility to go? And I mean, why can we get the regulator's to say, look for people that don't hold accounts with more than I don't know, 1500? Rand, there should be no FICA should be exempt. It should just be.

Jan Pilbauer

Yeah. And there are actually some models again, for SQLite. You know, that some banks introduced that you can send money to your gardener, gardener cell phone number, and to certainly need. The bank doesn't know anything about the person who actually send the money today. But that's,

Colin Iles

that's so that they can do a cash withdrawal. I'm saying can we just make it I can actually have a proper digital store.

Jan Pilbauer

But in some instances, people can actually use it also to make payments that they don't have to withdraw the money only they can make payments. It's still in closed groups. So of course, the interoperability is something which we need to resolve, ideally, as part of the RPP. I'm just trying to say that the regulator has started thinking about risk based approach, right? It's very different if somebody's holding have tens or hundreds of thousands of Rand versus somebody is using a transactional, transactional account for something. So it hasn't been completely resolved like foreign exchange controls. That's another pain point, which I think Africa overall will have to resolve somehow. But I hear you, there is a little bit of a plug, we started the digital identity project where some of these FICA requirements and it's a broad collaboration not only by banks, or the community with telcos and everybody else, because I believe that the authorization and authentication and digital identity broadly, can be actually done not about building a new one. But again, interconnecting the home office and the Home Affairs database with somebody who can reduce their foreigners with somebody else who knows you know, your credentials when it comes to education. So we have another major project next to RTP. And that's linked to digital identity, because we like challenges. But some of these answers we are trying to find through the work there.

Colin Iles 53:07

Okay, a one word answer for my last question, and I'll hand over to Marius. India, we know is really doing some amazing things with payments. And you know, that sort of identity management on a scale, which just beggars belief, which African country is leading the pack, in your opinion, when it comes to, you know, designing a proper 21st century payment system? One word answer.

Jan Pilbauer

It's hard, you will probably not get one word answers. You know, everybody talks about Kenya and mPesa and all that stuff. It's a great tool. But for very specific use case, I like what Ghana is pushing for, I think Ghana with some of their tools and stuff like that it's good, that everybody is addressing their own own thing. So I think it's going to be South Africa.

Colin Iles

Thanks, Jan. Marius. You're on mute, as always happens. Just for once, it wasn't me.

Marius Mare 54:08

Thanks a lot, John, for joining us, we really enjoyed your enthusiasm around payments. You know, it's when I was at university, you know, you had a few professors that got excited about mathematics, and then you then you would know that they are real, you know, lovers of what they do. So thank you for your enthusiasm around our call. And I think that, you know, the specifically real time clearing and making it easier for people to pay is going to make a massive difference. I think it is probably one of the reasons why we have debit orders, because it does reduce some friction, that you don't have to do it because it's an effort to do it every month, and you forget about it. And I think if it's if it's made easier, then it's going to be, you know, worth our while. Maybe just if you can find by just one question. I mean, this this whole talk in the industry around the cross-border payments and the cost of it. Now, from my perspective, I see like loads and loads of fintechs trying to solve that issue. And I'm wondering if it's gonna get crowded, and you know, if you if you maybe just have a short opinion on cross border payments, and where it's going

Jan Pilbauer

We launched a regulatory recognized e macro sadac . So that's another thing we have, it's called PCIB. Yes, terrible marketing, but transactions cleared on immediate basis. It's live, we are onboarding more. And we have now four countries. And I can tell participants we are aiming to have fourty very, very soon. So I hope that's going to be a game changer. That's one thing more Marius, people make money on friction. So don't underestimate some of the existing commercial relationships. And while the noble purpose is clear, we want to make it cheaper for everyone. It will require some of the commercial models to be kind of turned upside down because people will have to find a new way how to make money.

Marius Mare

Colin, once again, thank you very much for hosting. We look forward to our next one, maybe just a bit of an advert on what's next for us, Colin, I think there is an exciting one for all our ladies on the call.

Colin Iles

Yeah, so we're working on that one on planning. I'll keep that a secret. But all the ladies on the call, do message me we've got some cracking panelists that we're lining up to. And I think I'm going to do my best to host this, I might be putting my foot in it every now and then. But in broad terms, I want to get some of the successful ladies that are recognizable names, you will recognize them to talk about their stories about how they've managed to succeed with all the odds that have been against them, and how things have changed over the last decade or two and their advice for other women that wants to succeed in the business world. So I'm looking forward to that one that's going to be somewhere around Women's Day, which is August, isn't it? I think. Yeah. And you put them on the spot. I forgotten what the next one is. So I'll email everyone about that!

Marius Mare

Thank you, Colin, and thank you to everyone that joined. If there are more questions, please post them to us. And I'm sure that Jan would gladly answer as well if there's something fine. Thank you. Yeah.

Colin Iles

Thanks, everyone. Until next time, bye bye. Thank you very much Jan. And thanks, Marius. Bye Bye.


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