By Sindiswa Makhubalo – Departmental Head: Banks and Payment Providers (FSCA)
The FSCA recently hosted its Familiarisation Programme aimed at sharing regulatory insights and best practices with fellow regulators from the Southern African Development Community (SADC) region. This initiative contributes to strengthening regulatory authorities across our jurisdictions in order to improve the outcomes that financial customers experience when interacting with the financial sector.
The programme covered a variety of market development and oversight topics, with focused sessions providing in-depth discussions on regulatory and supervisory matters. Participating in the programme gave us an opportunity to share insights gained in our journey of supervising banks and payment providers, particularly in respect of digitalisation in the financial sector.
Digitalisation has revolutionised the financial sector and reshaped how society views banking, enabling financial customers to access banking services from almost anywhere. Digital banking has become the most utilised form of banking in South Africa. This significant shift can be attributed primarily to the Covid-19 pandemic which presented circumstances that triggered the acceleration of the digitisation of payment services; with the shift from physical cash to contactless payments accelerating the adoption of digital technologies by financial services providers.
Payment providers have become critical players within the financial industry. They connect the merchant, consumer and financial institution through the quick and efficient processing of transactions. There are several other factors that have influenced the preference for digital platforms, such as:
- Quick and easy onboarding process for financial institutions
- Integration of financial products and services into Mobile Apps
- Expedient, reliable, fast and secure transacting
- Eliminating in-person money transfers
- Functional and convenient banking
- Digital identity has enabled safe use of digital wallets and processing of payments through seamless connection to banking accounts
- Digitisation has made transacting affordable with expected low to no-cost options, and
- Affordable financial savings and access to investments
As with all change, there comes challenges to contend with; and the case of payment providers having to adapt to digitalisation is no exception. Below we unpack some of the challenges which relate to cyber security, customer trust, regulatory compliance, payment harmonisation, mitigation of fraud and data breach, chargebacks, innovation in fintech and skills expertise.
The issue of dealing with conduct concerns arising from digitalisation is of particular interest.
Financial customers are mostly likely to rely on digital analysis when buying a financial or credit product which means additional information is required to ensure the chosen solution caters for their needs. This tends to affect customer experience and turnaround times. Several financial institutions have closed branches and migrated to call centres for customer service activities, presenting a challenge for how supervised entities respond to customers.
System downtime or the unavailability and malfunctioning of self-service platforms has resulted in customers being unable to access financial services or customers incurring additional costs to complete their financial transactions.
Cyber security risks must also be taken into consideration as financial institutions depend on digital communication to engage with financial customers, from onboarding regular servicing of their customers. Online interactions generate a lot of data and the onboarding process is rich with sensitive personal and financial information. A potential breach could expose this data, placing customers at high risk and undermining trust in the financial institution.
Financial customers are more likely to fall for online scams, despite being more internet savvy. They remain vulnerable to online scams, especially in the current economic climate. Furthermore, account takeovers by fraudsters leads to payment fraud on existing customers' accounts, where their saved billing details are used to make purchases, or to redeem reward points as well as re-sell their accounts online.
Digital inclusion is also a concern as it is driven by access to digital channels, enhanced skills and trust, especially amongst consumers living in in remote, rural areas of the country with little or no digital access. Consumer education driven by the FSCA continues to be the primary solution to ensure that all financial customers understand, contribute and benefit from digital banking. | 
