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SAPO needs exhaustive footprint to pay SASSA grants

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Net1 CEO Herman Kotz'e.
Net1 CEO Herman Kotz'e.

There is a place and rationale for government's intention to use the South African Post Office (SAPO) to distribute social grants, but the question of how it will specifically cater to citizens in deep rural areas still remains.

So said Herman Kotz'e, CEO of Net1 UEPS Technologies. He was responding to questions following social development minister Bathabile Dlamini's pronouncements that a new services provider will take over payments by November.

According to Dlamini, the social development department has begun engagements with other organs of state towards phasing out the services of the current service provider.

Cash Paymaster Services (CPS), a Net1 subsidiary, distributes social grants on behalf of the South African Social Security Agency (SASSA).

However, Net1 and CPS have been the subject of public scrutiny as both companies dominated news headlines over the past few months with regards to the payment of social grants in SA.

SAPO has been hotly tipped as the frontrunner to take over from CPS, and says it is ready to use Postbank to assist SASSA distribute social grants.

Kotz'e said there have been no talks yet between Net1, SASSA and Dlamini about CPS's future with regards to social grants payments, but noted the company can play a continued role in the process.

"I think it's obvious the Post Office needs to be part of the social grants payments system," he told journalists attending a Net1 media tour in Kokstad, in the KwaZulu-Natal province, last week.

Social grants recipients line up at a CPS paypoint in Bizana in the Eastern Cape.
Social grants recipients line up at a CPS paypoint in Bizana in the Eastern Cape.

Kotz'e explained: "From our perspective, certainly, I think that there is logic in using the Post Office. The Postbank obviously will have [its] own licence soon - I think that's an aspect that is not clear yet in terms of timing, but I do think there's a place and rationale for using the Post Office. Similarly, we would need to see what the plan is to specifically cater for the deep rural areas where the Post Office footprint may not be as exhaustive as it is in urban areas.

"Having said that, I think the minister, or Mr Magwaza from SASSA, indicated that they may want to do a separate arrangement or issue a separate tender specifically to look at the deep rural areas. We'll have to see how all of that unfolds over the next couple of weeks; we'll be in a better position to analyse what it is that we can do and what role we can play."

Unfair practices

CPS has been the paymaster of social grants to over 10 million recipients since it was awarded the tender to carry out these services in 2012. The contract was declared invalid by the Constitutional Court (ConCourt) after it emerged irregular tendering processes were followed in awarding the tender. However, the court suspended the invalidity declaration pending the contract's expiration.

In March, the ConCourt was required to intervene once more when it permitted the extension of the current payments contract for another 12 months so that social grants could be paid on 1 April.

The extension of the CPS contract was based on the failure of Dlamini and SASSA to keep their promise to the court and the people of SA, the ConCourt said at the time.

With the 12-month contract extension, the court has given the social development department and SASSA time to either bring social grant payments in-house or find another suitable payments provider.

The distribution of social grants by CPS has resulted in negative sentiment towards the group, according to Kotz'e.

The Net1 subsidiary has been accused of conducting illegal deductions from the bank accounts of beneficiaries and sharing of beneficiaries' personal information to its subsidiaries or third party service providers, allegations the company refutes.

To tackle grievances from beneficiaries regarding deductions, among other issues, Net1 plans to introduce an internal ombudsman that will deal with these issues, it said.

Widespread reach

Although SAPO has put its name forward as a future distributor of social grants, it hasn't indicated how it plans to achieve this.

SAPO's Postbank will have to compete with a network of over 10 000 CPS pay-points nationally.

Losing the social grants distribution business is likely to be a sizeable loss to Net1's bottom-line, said the CEO.

However, the company has done a good job to diversify its business portfolio. Kotz'e revealed last week, CPS's profit after tax over its five-year period as social grants distributor reached R700 million. "As we've seen from the ConCourt filing, it is a profitable enterprise, and clearly it contributes to our bottom-line - so, to the extent that that element of the group's earnings goes away over time - that obviously has an impact on the business."

I think we've put in our best efforts over the last three or four years to diversify the business, said Kotz'e.

"Net1 today is an international group with operations in Korea, Germany, Hong Kong, etc. So yes, certainly it will have an impact on our reportable earnings, but hopefully when we get to that point, we can demonstrate that we've diversified the business sufficiently enough that we're not all about the SASSA business and ancillary business around SASSA."

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