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Grindrod shifts blame to Net1 on sky-high bank fees

Sassa has upped the ante on recovering excessive bank fees via court action, which Grindrod says should be directed to Net1 instead of the bank.

Grindrod says it doesn’t see a legal basis in the demand by South African Social Security Agency (Sassa) for the bank to refund social grant beneficiaries after they were hit with a 45% hike in bank fees to withdraw their money.

Instead, Sassa must take up the fight with Net1 – the tech giant that administers the payment of grants through its subsidiary Cash Paymaster Services (CPS) – and not Grindrod, says David Polkinghorne, MD of the banking division.

“We need to see a legal basis for Sassa requesting us to refund it,” Polkinghorne tells Moneyweb. “It never had a contract with us but with CPS, so I don’t know on what basis we could be cited as a party … It’s a Net1 issue more than a Grindrod issue in terms of the ability to refund or challenging the underlying cost base [of bank fees].”

Grindrod is a partner of Net1 in producing and underwriting the Sassa/Grindrod branded cards, which are currently used by beneficiaries to access their money at CPS dedicated pay points, ATMs and retail pay points. Separately, Grindrod manages the EasyPay Everywhere cards, which are also used by beneficiaries.

The battle between Grindrod and Sassa intensified last week after the latter’s acting CEO Abraham Mahlangu began legal proceedings against the bank over excessive bank fees.

Mahlangu is directing the fight at Grindrod, which he says increased its fixed monthly bank fees from R6.91 to R10 from April 1 for some 5.4 million beneficiaries – profiting from impoverished and vulnerable citizens. Out of the R10 fee, Grindrod earns R0.50 per account per month while the remaining R9.50 is paid to Net1.

Sassa demanded that the bank revert to its initial fee of R6.91 and reimburse all beneficiaries R3.09 – a figure reflecting the difference between the revised monthly fee of R10 and the initial fee of R6.91. The bank refused, and the dispute might be heading to court. “We have not increased anything on our side,” says Polkinghorne. “The bank fees were R0.50 for five or six years [since Grindrod began to service beneficiaries] without an inflationary increase and it’s still R0.50. It’s not possible for us to repay Sassa when we only earn R0.50.”

He says Grindrod has attempted to engage with Sassa about reducing bank fees or it subsidising the bank for fees. But the discussions were in vain.

Net1 CEO Herman Kotzé says there was no choice but to increase bank fees as Sassa didn’t have a contract to subsidise fees from April 1. Previously, Net1 was paid R16.44 per beneficiary by Sassa.

Says Polkinghorne: “Previously, the bank fees were zero for beneficiaries but that went from zero to R10. The unfortunate thing is that the loser is Net1 who went from [being awarded] R16.44 per beneficiary to [charging beneficiaries] R9.50 and the beneficiary who went from zero to R10.”

Knock-on profits

Sassa is in the throes of migrating beneficiaries to a new payment channel, in which payments to the Sassa/Grindrod branded cards will be replaced by the South African Post Office payment systems from September.

Sassa has asked beneficiaries to access their grants at the at 856 Post Office branches across SA, any of its merchants (such as Shoprite) or agents, and banking infrastructure (ATMs run by commercial banks) using the new Sassa/Post Office branded cards. It also recommended to beneficiaries that they use a bank of their choice in accessing their money.

Servicing fewer beneficiaries through its banking technology means that Grindrod will pencil in lower profits, which Polkinghorne didn’t put an estimate to. “I don’t see it [profit decline] being material. It might mean that we have a short-term [over a one-year period] drop in profits,” he says.

A loss of one million cards at R0.50 cents per beneficiary bank fee, for example, might mean that Grindrod will lose R500 000 in revenue per month.

Polkinghorne says Grindrod is planning to retain a share of the 5.4 million beneficiary accounts that might migrate to the Post Office, enticing them with the “affordable” banking service of its EasyPay Everywhere cards. The card enables beneficiaries to access loans and insurance products through Moneyline, a subsidiary of Net1, and withdraw cash at ATMs.

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And its the poor who continue to be scammed whilst the shareholders in Net1 prosper.

Really?

It has a zero dividend and trades at a PE of 9, which is relatively low.
Reason for the low multiple is probably the risk of doing business with the South African government. The Net1 shareholder is not being rewarded but penalized.

If you think Net1 has got a license to print money due to the SASSA contract then buy the shares. So far shareholders have not exactly prospered.

PS. I do not own Net1 in my portfolio.

More SASSA incompetence. They never subsidized the bank fee. Now that Net1 is gone the poor can deal with the incompetence of SASSA and SAPO and beneficiaries will no longer be getting their grants on time.

All you have to do is look at the Net1 stock price to see the shareholders have NOT prospered.

What is very interesting is that a bank can actually offer the bank account back-end for 50c per month (as Grindrod did for many years)!

That must be a great indicator for the potential of a branch-less bank to disrupt things and also for post office and its thousands of points of presence to partner as a low cost or free bank for the unbanked. Just please keep the slime balls selling credit and policies to uneducated masses very far away from the scene

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