Net1, the parent company of social grants distributor Cash Paymaster Services (CPS), plans to rollout banking services to underserved consumers – some of who are social grant recipients – after its contract with the SA Social Security Agency (Sassa) ends in March 2018.
Although Net1 is not rushing to launch a fully-fledged bank, CEO Herman Kotzé said CPS’ underlying technology, which has been mainly used to distribute more than 10 million social grants, could be used to offer banking products and services.
The CPS business would focus exclusively on large-scale financial inclusion opportunities for unbanked and lower-income earners located in far-flung areas.
“We aim to expand our reach beyond just providing services to social grant recipients. They [social grant beneficiaries] will still be able to use our banking services – the way they have been doing in the past,” Kotzé told Moneyweb.
He said CPS is currently prohibited from offering banking services due to its contract with Sassa, but this condition falls away when the contract expires and is phased out.
CPS’ contract with Sassa, which was declared invalid in 2014 by the Constitutional Court for not going through proper tender processes, expires on March 31 2018. Sassa has asked the court to extend CPS’ contract for an additional six months, but Net1 is not in favour of the extension.
The main reason for rejecting the extension, Kotzé said, is that Net1’s reputation has been sullied for scoring the contract in a flawed manner. “We don’t want to be continuously trapped in an arrangement that is seen to be an extension of an invalid contract. It has really been damaging to us.”
However, Net1 might consider the extension if there is no other way to pay social grants as “we don’t want to be responsible for the failure of the grants system”. The process to extend the contract must be regularised and legal, Kotzé added.
Net1’s rejection is also premised on its banking ambitions using CPS’ technology.
It will continue its partnership with Grindrod Bank, which currently has 10.8 million bank accounts that social grant beneficiaries use to access their grants via ATMs and retail pay points, to underwrite and rollout its banking services. Its EasyPay business, which boasts two million EasyPayEverywhere active bank accounts as at December 2017 and ATM infrastructure, will support its banking ambitions.
Net1 plans to offer mobile transfer and transactional services, credit facilities, insurance products, and prepaid products including electricity and airtime.
The banking services will be similar to CPS’ current social grant distribution operations, mainly in its ability to reach rural areas within a 5km radius through its vans that are kitted with biometric UEPS/EMV technology to allow recipients to withdraw cash – even when there is no electricity supply.
“There is no reason why we can’t deliver other goods and services to the same people with the same infrastructure and network,” said Kotzé.
“We think that people in rural areas are still underserved. They have a need to transact and the fact that they are poor doesn’t mean that they don’t want to transact and not have access to credit.”
Civil rights group Black Sash has accused Net1 of using the personal information of social grant recipients in an unauthorised manner to offer them insurance products, prepaid airtime, water, electricity and unsecured loans with high-interest rates. Net1 allegedly used its subsidiaries EasyPay and Moneyline to do this.
Net1 has denied all allegations of wrongdoing.
When CPS’ contract with Sassa ends, it’s expected to transfer the personal information of social grant recipients to the SA Post Office, which will be the new paymaster from April 1 2018.
Asked how Net1 will build its client base for the banking services, Kotzé said it will be up to social grant beneficiaries to choose its banking services or that of the Post Office, which operates Post Bank. The bank already boasts 5.8 million clients with active savings accounts and over 2 000 Post Office outlets across SA.
Net1 is also looking beyond social grant beneficiaries as its clients.
“There are people who are not social grant recipients but earn a wage and fall in the LSM 1 to 3 [those earning less than R6 000/month] category. Most banks are not interested in servicing these people but we are.”