Some 16.9-million people receiving welfare payments from the government into bank accounts should have the right to choose between financial services companies, according to the South African Reserve Bank.
A contract awarded by the South African Social Security Agency (Sassa) to Johannesburg-based Net 1 UEPS Technologies to pay grants electronically in 2012 has this year been dogged by court battles and criminal charges. Under the contract, which will be taken over by the agency when it expires in 2017, Net 1 arranged for Grindrod Bank to provide the accounts.
While the system brought an end to cash payments, which can be stolen, it opened the way for other abuses. The government in May amended regulations to ban direct deductions from the accounts, saying that in addition to funeral insurance, which it had allowed, debits were being made for goods and services including cellphone airtime and short-term loans. It said many people did not know what they were consenting to when they signed debit orders.
The Bank is recommending that beneficiaries be allowed to “obtain an account from a bank of their choice”, spokesman JabulaniSikhakhane said in an e-mailed response to questions. They should get accounts that adhered to the welfare agency’s requirements, so it could include subsidised transactions and a restriction on debit orders, he said.
The central bank also wanted more stringent criteria to be applied for the sale of financial products to social grant recipients, including language that was easy to understand so people did not buy unsuitable services, Sikhakhane said.
The Reserve Bank oversaw all payments in SA and should be consulted over the design of future systems for grantees, Sikhakhane said. Changes to deductions would also need to be handled carefully as an “abrupt termination of debit orders” could cause disruptions to the national payment system, he warned.
“The (Reserve Bank) would also support an open competitive architecture as the basis for the design of future payments systems,” he said. “Sassa should specify its requirements, guided by the unique needs of social grant beneficiaries, and financial-service providers should respond.”
In the last financial year, SA paid out R129bn in grants, which range from R330 to R1,435 a month and are the primary income for one in five households.
Sassa had regulations amended after it objected to the sale of funeral policies to children on welfare by insurance companies. At the time it was involved in court cases regarding the policies with Lion of Africa Assurance Company and a unit of Sanlam.
The regulation changes prompted Net 1 to file a court case against Sassa that has been joined by Grindrod and other parties. Sassa filed criminal charges against the two companies for allowing deductions to continue being made.
In court documents filed in June in response to the case brought by Net 1, the central bank said the company could have a conflict of interest as its subsidiaries marketed products and services to grant recipients. It also said Grindrod may be too small to effectively carry out its role in the system.
As of 2014, Grindrod Bank had 163 employees and assets under management of R14.3bn, according to its website. Standard Bank, SA’s biggest bank by assets, had more than 54,000 workers at the end of 2015 and assets 47 times that of Grindrod. SA’s three other major banking groups, Nedbank, Barclays Africa Group and FirstRand, have between 31,000 and 43,000 employees each.
Christopher Newland, head of retail for Grindrod Bank, who filed court papers on behalf of the lender in June, did not immediately respond to a phone message and an e-mail requesting comment. The company in June said that Sassa was acting unlawfully by ordering a halt to the deductions.
As many as 40,000 grant recipients had already opened accounts at the four biggest lenders, Net 1 spokesman Dhruv Chopra said. “There are 1,350 companies that provide various financial services to beneficiaries. We only own three out of the 1,350.”
Net 1’s system “is already open as it is compliant” with global credit and debit card payment standards and used MasterCard for its services, he said. If regulators were to insist on open architecture “it would make no difference to us”, he said.
Net 1’s system had been reviewed by the Competition Commission, the Reserve Bank and the Payments Association of SA, Chopra said. “The entire system is built for competition, and competition already exists and is encouraged.”