COVID-19 squeezes Net1’s finances in Q3
JSE-listed financial technology firm Net1 UEPS is expecting to forgo millions of rands in cash withdrawal fees until the COVID-19-induced freeze imposed by the industry is uplifted.
The company announced its Q3 2020 results today, saying it had to forgo R8 million in cash withdrawal fees and is expecting the figure to double by the time it is allowed to collect fees.
At the beginning of the national lockdown, South African banks decided collectively, through the Banking Association SA, to waive all Saswitch fees so that clients can withdraw cash from any bank ATM.
“We estimate that we had to forgo cash withdrawal fees of approximately R8.2 million during the month of March 2020. We expect that we will forgo monthly cash withdrawal fees of between R18 million to R20 million until we are allowed to charge our customers to withdraw cash from our ATM network once again,” says Net1.
However, Net1 continues to earn interchange fees in “respect of cash withdrawals from our ATMs performed by the customers of other issuers”.
Net1 CEO Herman Kotzé lamented the impact of the COVID-19 lockdown on the business, saying “the pandemic and resulting lockdowns have impacted our ability to market to and acquire new customers as we had to suspend operations deemed non-essential across our branch network”.
However, he says despite the disruptions and restrictions: “I am proud of and thank our employees, who continue to serve our customers during this unprecedented time. Many of our South African processing businesses observed record daily transaction volumes during April, demonstrating the importance and relevance of our network.”
During the period, Kotzé says Net1 experienced 100% uptime for its core processing systems, as well as developed and launched new products, “such as our feature phone-based loan origination product to eliminate face-to-face interaction”.
According to Kotzé, the company is well-positioned to weather the short-term economic disruptions and will emerge from the pandemic even stronger as a business.
“We completed a number of corporate disposals over the past few months, which leaves the company in a very strong and liquid position. We also believe there will be significant demand for our products once the operating restrictions are lifted.”
Net1’s key Q3 2020 highlights include the selling of KSNET for $237 million in March and DNI for $48 million in April. The company says as of 31 March, it had unrestricted cash of $209 million and total debt of $3 million.
During the period, Net1’s revenue of $36.5 million remained flat year-over-year in US dollars but grew 8% in constant currency.
Turning to prospects in SA and the rest of continent, Net1 says it intends to leverage its scale and distribution platforms to drive transaction processing, banking, and financial and value-added services products as soon as the lockdown restrictions begin to ease.
Kotzé explains: “Though South Africa moved from severity level five to level four on 1 May, economic activity is expected to increase once severity levels are lowered to three on 1 June. Across Africa, we intend to increase cooperation with Carbon and V2 in order to drive expansion in Nigeria, Ghana and Kenya.”
According to Net1 CFO Alex Smith, while the company’s South African processing businesses experienced strong volumes during April, “our inability to charge for certain of our services and operate parts of our financial services business during the lockdown period has had an adverse impact on our operations”.
He adds: “If we are able to commence the marketing of our new financial and banking products prior to the end of fiscal 2020, we believe for the full year fiscal 2021, our adjusted-EBITDA should be modestly positive."