Now’s the time to pick up the cheque as South Africa is set to ditch the payment method for good.
On November 18, the South African Reserve Bank (SARB), Financial Sector Conduct Authority (FSCA), Payments Association of South Africa (PASA), and the Banking Association South Africa (BASA) issued a joint a statement that from December 31, 2020, cheques would no longer be issued or accepted for deposits or encashments by the country’s banks.
The announcement drew the comical ire of Finance Minister Tito Mboweni who declared on Twitter he would continue to use the method and proudly showed off his Standard Bank cheque book. “Old folks don’t fade away easily!” he wrote.
The SARB listed several factors for its decision to drop cheques, including lengthy processing periods, fraud, transaction fees, a lack of education and protection for the consumer, and ageing cheque processing infrastructure.
Peter Harvey, Managing Director of payment service provider DPO South Africa, said the SARB’s decision made sense. “The number of cheques processed has declined significantly over the last 10 to 15 years. This, combined with the inherent risk of a cheque as a payment method, makes it a no-brainer to stop cheque processing.
“I find it equally surprising that there is a segment of the population still actively using cheques.”
The handwriting had been on the wall for cheques for some time. The payment method accounts for less than 0.1% of all payments in South Africa. The SARB reported that between September 2019 and September 2020, the usage of cheques had declined at an even faster rate due to the impact of the Covid-19 pandemic, and saw payment values decrease by more than 80%.
In April 2019, the SARB gave the go-ahead for the item limit on cheques to be reduced from R500 000 to R50 000, to come into effect from May 1, 2020. Following the reduction, both FNB and Absa announced the discontinuation of cheque facilities. Absa stopped issuing new cheque books to clients as of July 1, leading to the abandonment of the payment method at the end of the year.
“This decision was taken as part of our efforts to improve risk management, and in consideration of the ongoing decline in the use of cheques,” said Bongiwe Gangeni, Deputy Chief Executive of Retail and Business Bank at the Absa Group. “The sunsetting process has been managed in a phased manner to ensure minimum disruption to our clients’ operations.”
Nedbank stopped issuing cheque books on September 1.
The announcement comes as financial institutions and service providers continue to explore and endorse the use of online and mobile banking methods.
On Wednesday, Discovery announced it had made changes to its mobile banking app and announced the addition of a new virtual card system, allowing app users to bypass the need for a physical card.
“With this new capability, our clients will never be left stranded without a card. It’s stored safely in the Discovery Bank app,” said head of Client Insights at Discovery Bank, Akash Dowra. “Furthermore, when the card expires, it will be replaced automatically, and we will carry across any regular payments to the new card, taking away the admin for our clients.”
Equipped with its own unique card number, expiry date, and Card Verification Value (CVV), the virtual card is available to clients and no additional cost, and was recommended to be used for online payments and subscriptions.
“By using both a physical card and a virtual card for different transactions, our clients have the ability to elevate the security on their banking transactions and protect themselves against potential fraud,” Dowra explained.
Discovery’s announcement comes a week after Capitec announced the launch of its own virtual card available to clients through the bank’s mobile app. Both Standard Bank and FNB also offer virtual card facilities.
Pieter de Swardt, country manager for mobile security software provider Entersekt said South Africa was the head of the global pack when it came adopting digital and mobile banking.
“Globally, we’ve seen digital banking increase steadily over the last few years, but with the Covid-19 pandemic necessitating social distancing and lockdown measures, digital banking has exploded,” he explained.
“Even in South Africa, where we already had relatively high mobile banking penetrations, the numbers rose, especially with the focus on social distancing that has made truly contactless transactions so appealing. I think we’re likely to see mobile and contactless transactions grow.”