Three of South Africa’s biggest banks are considering bidding to distribute government welfare payments to more than 17 million people as a contract with a unit of Net 1 UEPS Technologiescomes to an end after years of legal battles.
The existing contract earned Net 1 about R2 billion ($149 million) a year, its annual reports show. Barclays Africa Group, Nedbank Group and a unit of FirstRand are contemplating bids, according to e-mailed responses to questions from the Johannesburg-based lenders. The state-owned Post Office has already said it will bid.
While it is yet to issue a formal bid, the South African Social Security Agency has asked potential bidders to submit requests for information as it mulls how to distribute R139.5 billion of welfare payments a year. The current contract with Net 1 unit, Cash Paymaster Services, expires at the end of March, but may be extended until Sassa’s own systems are in place or an alternative provider is found, according to the Social Development Department.
While CPS’s contract was ruled invalid by the Constitutional Court in 2013, it continued because Sassa didn’t issue a new request for proposals and there were unresolved legal disputes.
“Government deals come with a lot of costs,” said David Shapiro, deputy chairman of Sasfin Securities in Johannesburg. “I imagine there will be a number of bidders. It’s too big a contract to disregard.”
African Bank and Capitec Bank Holdings said they aren’t bidding, while Standard Bank Group said it hasn’t engaged in the Sassa process to date.
“If I was a bank and tendering, I would make sure that the awarding of the contract is very transparent with clear reasons given why the winning bid won,” said Kokkie Kooyman, a portfolio manager at Cape Town-based Denker Capital. “The whole problem with Net 1 is the allegations that they didn’t win the tender fairly.”
A unit of Barclays Africa called AllPay used to distribute some of the social welfare grants and legally challenged the awarding of the contract to CPS.
“Winning the tender to distribute social grants will mean a significant boost to the winning bank’s revenue line,” Adrian Cloete, a banks analyst at PSG Wealth in Cape Town, said. “The extent that this translates into bottom line profit will depend on how keenly the contract is priced and how much additional expenditure is needed to be able to provide the service to Sassa.”
© 2017 Bloomberg