Fallout over payments system exposes banks

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Reserve Bank of Zimbabwe believes that in order to change the country’s economic fortunes; the structural issues underpinning this imbalance should be addressed sooner rather than later.

Kudzai Kuwaza

THE bitter fallout between local banks and London Stock Exchange-listed firm Cambria Africa — which owns Payserv and Paynet — that provided a payment solution to the local financial institutions, has forced the banking sector to use an outdated manual simulation system, exposing bank customers to fraud and the sector to systemic risk.


Financial sector executives say the fight has left Zimbabwean banks keeping information manually rolled up into sets of financial statements in an old-fashioned way. 


“The system is inefficient, cumbersome and is prone to errors, as well as exposure to fraud and privacy breaches — transactions records are e-mailed or sent by WhatsApp unencrypted. Where in the world do you find such a thing in the new digital technology-driven 21st Century?,” one banker said.


The dispute emanates from a US$430 000 payment that Paynet is demanding from banks for services it has rendered.

Financial institutions have, however, refused to pay the service provider in forex, insisting on settling in Zimbabwean dollars even though the agreement was in forex, taking advantage of the new local currency regime. 


This has led Cambria Africa to sue the Bankers Association of Zimbabwe (BAZ) and its members for US$100 million for collusion and anti-competitive practices.


Sources said as a result of the row, banks have dumped the electronic system and gone manual using Paynet format, opening a new battlefront — intellectual property rights.


Although banks say the new system is cheaper as it is paid in local currency, insiders say it has left the sector exposed to numerous technical and service delivery problems.


While the relationship between Paynet and banks has broken down, the financial institutions’ gateways with software that belongs to Paynet to enable delivery of payment instructions has remained in place even though some banks have blocked Paynet to their accesses. This has led to financial disintermediation.

Bankers warned this week the new manual system is inefficient, slow and risky. Payments are now delayed by up to a week.


“Payments are piling up and, as a result, numerous mistakes are being made with client confidentiality or privacy being breached because of the unencrypted system.  There is also the problem of risk as the system has exposed customers to serious vulnerability, including fraud,” another banking source said.


“Above all, the new manual system which has been hastily been put in place after the fallout between banks and Paynet has resulted in significant financial disintermediation.”


On the cost issue, one banking manager said: “The manual system is not only insecure, but expensive. Under Paynet, for instance, customers were charged US$0,16 cents per transaction,  but now some banks are charging ZW$3,75 per transaction, while others are demanding ZW$5 for internal transactions and ZW$15 for external transactions.”


Owing to the rising bank charges or costs, sources say, many customers now want to transfer payment of their salaries through a platform set up by Paynet and mobile operator Econet using Ecocash as it is faster and more secure.


Banks have accused Paynet of holding them to ransom and being extortionist by demanding payment in forex. 


However, Paynet argues banks have a contractual obligation to pay for the service in the agreed currency. Banks are, however, determined to disengage.


Paynet has also accused banks of playing to the gallery on the issue as they hide the real reason behind the dispute: money-spinning opportunity for themselves by raising charges. 


It says banks have also been lying about circumstances leading to the termination of the relationship claiming they were switched off without notice — when they were actually given several notices — and in fact disconnected themselves to evade paying their obligations in hard currency.
After the fallout, 19 banks went on to buy two switches each for US$1,8 million from a United States payment solutions firm Postilion, which brought the total cost to US$68,4 million. The switches are needed to connect to ZimSwitch, which is owned by some of the banks.


ZimSwitch is the sole national electronic funds switch and clearing house for Zimbabwe. The company processes domestic card-based (automated teller machine and point of sale) and electronic funds transfer transactions amongst member financial institutions in real time online. It was established in 1994 by six banks.


On top the US$68,4 million, each of the banks are going to pay Postilion US$340 000 every year for support and maintenance as well as upgrades of the switches. This means that the banks will fork out a total of US$12,9 million a year.


The Paynet system, which the banks have dumped, meanwhile, cost an average of US$200 000 a year for the processing of transactions as well as installation, support and upgrades. Sources said this showed the real issue is not payment in forex, but an opportunity to make money by the quarreling parties.
ZimSwitch is being supported by its technical partner, a South African payment solutions company Finteq. 
“There is also a contest over intellectual property rights of the system. It is said a technician who worked for Paynet which was developing a system for the banks called Bankserv took the system he was developing and went with it to South Africa and sold it to Finteq,” source said. “This has complicated the messy affair.”
ZimSwitch is now developing its own system called Zeepay to completely replace Paynet. 


Besides splurging on a new system, banks are also paying in forex a Mauritius-based company Electronic Funds Technology Corporation which is facilitating electronic funds transfers.

“The argument that banks terminated the service agreement with Paynet because they wanted to avoid paying foreign currency is fallacious. The fact that banks offered to pay ZW$430 000 for service fees instead of the agreed US$430 000 shows they are not acting in good faith,” a source said.

“After that the same banks went on to pay large sums in forex to the new service providers. In any case, banks pay forex for almost all the software that they use. They pay forex for Oracle databases, accounting packages and indeed for their core system which is Finacle T24.”

Finacle T24 is a core banking system from Infosys that provides universal digital banking functionality to banks.

“If the argument by banks is that they want to pay in Zimdollars and save forex, why did they enter into an agreement with a foreign company to pay US dollars in the first place? Does this not show that they are simply creating stories to avoid their obligations?” one source said.

However, Accountant-General Daniel Muchemwa on Wednesday said government is now using a manual system which he said was “efficient and effective”.

He said a taskforce had been set up to oversee salary payments and development, as well as adoption of a new system.

“We set up a special team made of people from my office, a person from public finance management system … and people for the RBZ. Today is Wednesday, as of Monday we had a meeting and I am confident we do not need Paynet ever,” Muchemwa said at an Institute of Chartered Accountants of Zimbabwe event this week.

FBC Holdings chief executive John Mushayavanhu, whose company previously failed to buy into Paynet, said banks now had “a better product” and will not pay the forex being demanded by Paynet.

“The banks have said no, and they have developed a system which is working and is robust … At the end of the day, we have a better product we own as banks. All the banks own this product and we will not pay forex for it,” Mushayavanhu told local media. 

BAZ president Webster Rusere yesterday declined to comment on the dispute.

“Baz will communicate on the matter at the appropriate time,” Rusere said.

“Meanwhile, our clients are well-appraised of the initiatives that we are undertaking.”

Paynet chief executive Christian Beddies said: “The fallout is unfortunate and could have been avoided had banks engaged directly with us as opposed to abdicating their commercial and financial responsibilities to Baz and its committees,” he said. “Such collusion and anti-competitive practices sadly don’t just prejudice service providers, but also inevitably affect clients and the public interest.”

Reserve Bank of Zimbabwe governor John Mangudya said the dispute must be resolved amicably through talks. 

“As players in the market, they must sit down, engage and resolve the problem through negotiations,” he said.

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