Responding to a tweet regarding the Faster Payments Service in the United Kingdom, former FNB CEO Michael Jordaan stated that South African interbank transfers should be free and instant.
He added that Bank Zero, of which he is chairman, would aim to compete with other banks to lower the fee for real-time transactions.
This is one of the biggest frustrations in South African banking, as the transfer time for a local interbank payment can take days.
In fact, the standard rule for sending money to another bank’s account in South Africa is that it can take two business days to process.
In contrast, these transactions are processed instantly using the Faster Payments Service in the UK – which is free for retail customers.
South African banks say they are limited by a slow EFT system, however, and while instant transfers are usually available they charge customers a fee to use this service.
To determine the factors preventing the implementation of free, instant interbank transfers, MyBroadband asked local banks about the limitations of the EFT process.
Standard Bank said that traditional EFTs are collected throughout the day and processed in batches at certain times.
“The traditional electronic account payment service involves sending a file of payments from one bank to another,” said a Standard Bank spokesperson.
“The banks collate payments during the day and exchange files at close of business.”
“The receiving bank then processes the file during their respective batch run. Once processed by the receiving bank the payment is irrecoverable.”
Standard Bank added that when customers choose to pay for immediate settlement, the funds are cleared in around 60 seconds and there is no windows for reversals in the case of attempted fraud or user error.
“For this reason there is additional risk and costs associated to immediate settlement and therefore the associated fee charged by banks. These fees are reviewed on an annual basis to ensure alignment to the industry.”
When it comes to the R50 fee charged by Standard Bank for instant transfers, the bank said this charge exists due to the associated costs in the national payments system.
Absa explained that there are a number of factors which can affect a bank’s ability to facilitate immediate transactions.
“Transferring payments between two local banks in South Africa is facilitated via the Electronic Funds Transfer (EFT) system, which is a regulated service centrally governed by BankservAfrica (Automated Clearing House) to ensure that clearing rules are adhered to for all processing functions,” Absa RBB head of retail pricing Jean van Rooyen.
Van Rooyen said that one of the biggest factors which affects the facilitation of these transactions is the timing of payment submissions – as these payments are collated across the different banks and executed in batch runs.
“If the customer’s instruction has missed a cut-off time, the payment will follow through on the next batch run or fall in the 2-day payment period.”
Transaction fees apply to Absa’s immediate interbank payments, which are available through its online, cellphone, and telephone channels.
“This is an opt-in alternative to EFT credit transactions, which allows for the instant settlement of funds made immediately available to the recipient at the beneficiary bank.”
FNB EFT Product House CEO Ravi Shunmugam told MyBroadband that there are two types of payment systems in South Africa.
“In South Africa, we have EFT Credit (a batch payment system) and real-time clearing (a real-time payment system),” Shunmugam said.
“A recipient at another bank can get access to the funds on the same day as soon as the other bank processes the batch file to their customers’ accounts, provided that these payments are made before the daily cut-off time.”
“Real-time payments allows a recipient at another bank to receive money immediately – however, this may also take up to an hour in certain instances. All transfers within FNB are in real-time.”
Batch payments are cheaper to process and designed for high payment volumes, while real-time payments systems are designed for single transactions.
Depending on the pricing option customers choose, they may be charged for instant transfers to another bank from FNB.
“There are factors that affect the cost to provide both batch-based and real-time payments systems, which includes the bank’s cost and time to administer the service – such as processing costs, interbank processing costs, and fraud controls which are significantly increased with real-time payments.”
Shunmugam added that not all payments need to be real-time. For example, salary payments are processed upfront and the funds are made available on pay day.
Nedbank said that it takes two days to move money between two local banks due to industry standards.
“When South Africans transfer money between two different local banks, the processes which need to be followed require two days to complete,” Nedbank said.
“The reason for this is that once we receive a transfer request from our client, the instruction to proceed can take up to 24 hours to complete provided that all the details are in order.”
The receiving bank has to follow a similar process too, extending the amount of time taken for the transaction to be processed.
“Upon receipt of our instruction, the recipient’s bank will then follow their internal processes, including verification of regulatory requirements and industry standards, in order to credit the beneficiary’s account,” Nedbank stated.