Net1 UEPS Technologies is at loggerheads with National Treasury over the fee that it is paid to administer cash payments to social grant recipients through its subsidiary Cash Paymaster Service (CPS). It will require the Constitutional Court’s involvement, again, to resolve the impasse.
This is after finance minister Nhlanhla Nene recommended Net1 be paid R51 per social grant beneficiary (including VAT) – a fee that is 24% less than what the JSE- and US Nasdaq-listed company desired.
Net1 revealed this month in court papers that it wanted Treasury to increase its fee to pay social grants from R16.44 per beneficiary to R66.70 (including VAT) under a new contract with the South African Social Security Agency (Sassa).
If Net1 got its way, it would have scored a R1 billion bonus to distribute cash payments to about two million disabled and elderly beneficiaries for an extended period of six months ending September 2018.
Net1 has taken umbrage at the fee that Nene – through Treasury – has recommended.
“We believe that the National Treasury’s recommendations don’t take Sassa’s stated plans regarding [payment] volumes into accounts and does not recognise the need for us to maintain our infrastructure regardless of the number of beneficiaries paid,” group CEO Herman Kotzé told investors on Friday at the company’s March quarter 2018 results presentation.
Kotzé said Net1 has asked the Constitutional Court to refer the fee dispute back to Treasury for reconsideration.
Net1 finds itself at the top court again after its initial contract to distribute social grants to more than 10.6 million beneficiaries was declared invalid in 2012 by the same court, only for it to be subsequently extended twice.
The contract was extended in 2017 for 12 months after Sassa failed to find another service provider to replace Net1’s CPS. In March, the court extended CPS’s contract for six months, allowing it to administer cash payments to about two million beneficiaries while the remaining eight million beneficiaries are paid by the South African Post Office and Sassa.
Kotzé said not increasing Net1’s fee to pay social grants is one of the reasons why its profitability was knocked during the March quarter. Although Net1’s group revenue grew by 10% to $163 million, net income was $3.3 million – down from the $19 million it reported in the corresponding quarter in 2017.
The group’s operating margin fell to 17% from 24% a year ago, with its South African transaction processing division – which includes CPS, its retail card transactions, prepaid electricity, and airtime business EasyPay – also penciling a decline in margins of seven percentage points.
To recap on Net1’s social grants payment role: beneficiaries it pays don’t own bank accounts and live in areas that are not in proximity to ATMs or retail facilities but access their social grants in a physical cash format via vehicles kitted with CPS’s biometric UEPS/EMV technology.
Sassa faces delays in finding a service provider to replace CPS in the next four months after social development minister Susan Shabangu suspended the tender process in April, raising fears of a sequel to the social grants crisis. In justifying the suspension of the tender process, Shabangu said Sassa doesn’t have technical knowledge and expertise to evaluate tender proposals
Kotzé said Net1 participated in the tender process “only on the basis of being an outsourced technology and logistics provider”.
“We don’t know whether the tender process will resume but we are unlikely to participate if there are reputational, legal or financial risks that would result in the repeat of events that we endured over the last six years,” he said.
Awarding a contract to Net1 or extending its contract again would arguably raise eyebrows given that its participation in the social grants payment network has been controversial.
Kotzé said Net1 looks forward to being released from Sassa obligations as it plans to use the underlying technology for social grant payments to rollout banking services to underserved consumers.
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