With big commercial banks primed to play a key role in distributing social grants, all eyes are on whether the banking sector can finally free SA’s most vulnerable citizens from shelling out excessive bank charges to withdraw their monthly keep.
After many years of delays, banks including Nedbank, Barclays Africa, FNB and Standard Bank, have signed a memorandum of understanding with the South African Social Security Agency (Sassa) to find ways to administer the payment of social grants.
The Banking Association of SA (Basa) – which represents the interest of the banking sector – revealed that banks identified 8.3 million existing social grant beneficiary accounts, of which about 2.8 million were used to pay grants from April 1. These grants were accessed at ATMs across the country.
However, the big question is whether commercial banks can offer cheaper or even free solutions for social grant recipients.
Basa’s MD Cas Coovadia reckons so, saying banks already operate low-cost accounts and other products geared to recipients. After all, the Social Assistance Act has strict guidelines when it comes to recipients being charged for the receipt of their grants, as any increase in bank charges would arguably threaten their livelihoods.
“We [banks] believe that we can solve the payment experience for Sassa and recipients. On the cost side, we don’t want any money from this. We want to do this on a cost-recovery basis,” said Coovadia in an interview with Moneyweb on Tuesday.
In other words, banks can offer their services to grant recipients for free, but this largely hinges on a subsidy from the government to cover their costs. Only National Treasury and the Reserve Bank can make such a decision.
However, there are already delays in devising a subsidy policy, which was meant to be enforced on April 1.
To recap on the delays: Sassa asked larger banks to create standardised low-cost bank accounts but the big four banks were unhappy about this request, saying the accounts would create problems with competition authorities. They also argued that they each have unique products that are appropriate for grant beneficiaries, meaning standardised bank accounts wouldn’t work.
“The lack of policy around the subsidy won’t stop banks from continuing to approach Sassa recipients to open new accounts with banks. We indicated to Sassa that the subsidy should follow the money. If a recipient accesses their grant with a particular bank, the subsidy should go into that account and that gets passed on to the recipient,” said Coovadia.
Without a finalised subsidy policy, beneficiaries might be charged market-related bank charges, said a source at Sassa.
A recent analysis by Treasury revealed that the monthly fee to social grant recipients for low-cost bank accounts could be as high as R19.48 per recipient.
However, referencing a state subsidy recently granted to the South African Post Office, which took over the majority of social grant payments from Net1 subsidiary Cash Paymaster Services in April 1, Treasury said the monthly fee could be reduced to R9.39 per recipient.
Finance minister Nhlanhla Nene, on behalf of Treasury, said the R9.39 per recipient fee is “aligned to that charged by some banks for account maintenance and to the provision made in Sassa’s budget for subsidisation of electronic payments”.
Meanwhile, the consequences of Sassa’s mismanagement and delays in the agency signing a contract with Grindrod Bank – which provides banking services to Sassa by producing and underwriting 5.4 million Sassa cards used in the system – saw grant recipients paying R10 in banking fees to withdraw their social grants (see below).
|Bank charges for recipients|
|Service provider||Monthly cost per beneficiary|
|Commercial banks (with subsidy from government)||Free|
|Commercial banks (without subsidy from government)||R9.39*|
|*National Treasury recommendation|
Herman Kotzé, the CEO of Net1, which has partnered with Grindrod to administer social grant payments, said it was left with no choice but to levy the R10 fee. Its payment infrastructure comes at a cost, given that its contract with Sassa expired on March 31, but its critical services have been retained for an extended period. The fee was charged despite Sassa and Grindrod agreeing to a monthly fee of only R6.91 from March. Sassa is in a dispute with Grindrod, demanding the bank reimburse all beneficiaries who had been charged R10.
“The only other option would have been to close the accounts but that would have disadvantaged people who matter the most, namely the beneficiaries. This would have resulted [in] a significant disruption in the payment system,” Kotzé said at the company’s recent results presentation.
Listen to a podcast interview with Cas Coovadia about the Sassa developments here.