10 May 2024
Retailers have become distributors of social grants for the state.
The Post Office and Postbank have failed to manage the social grants payment system. But the private sector is not an easy fix either.
The failures of the Post Office and then Postbank have led to suggestions that the private sector should play a larger role in the payment of social grants. In this article we show that South Africa’s social grants history reveals the dangers of thinking private companies are the easy answer.
Fintech companies – old and new – are entering the grants payments space with little oversight, many of them through the promised benefits of ‘financial inclusion’.
Under the guise of financial inclusion, private financial companies can and do target grant recipients for exploitation and extraction. If a Universal Basic Income Grant (UBIG) is to be successful in South Africa, then the grants payment system must be safeguarded from private actors seeking to make big profits at the expense of grants recipients.
In 2013, the contract with Net1 subsidiary CPS to administer grant payments for SASSA was found to be unlawful by the Constitutional Court. What was not decided by a court but was arguably more devastating, was the way Net1 and CPS made profits off their unfiltered access to the private personal and financial information of social grant recipients. Net1 and CPS made millions by attaching loans, insurance policies or airtime deals to social grant recipients accounts, then deducting the payments when the grants were paid at the end of each month, sometimes without recipients’ knowledge.
These extractive practices are often obscured by the promises of ‘financial inclusion’. Financial inclusion broadly means that people and small businesses have access to financial products and services including credit, transactions, savings, and insurance. It was ‘financial inclusion’ that was the impetus behind Net1’s foray into social grants payments. Net1 partnered with Mastercard to implement a system that promised grant recipients easy access to their grants without the need to queue.
As others have argued, this was Net1’s way of turning social grants – already guaranteed by the state – into collateral for financial products they pushed onto the poorest South Africans. This meant a steady stream of income for Net1 and its subsidiaries with no risk. It also meant that these now ‘financially included’ people were often in a financially worse off position than before.
Unfortunately, such predatory tactics continue to plague grant recipients. In February 2024, Daily Maverick journalist Lerato Mutsila, reported on the ways in which social grant recipients were not receiving their grants. One of the recipients who shared their story with Mutsila was 83-year-old, Maureen Robbie, whose sole income source is the old age grant she receives.
In 2019, she realised that she was not being paid the full amount. Rather than receiving the full R2,910 old age grant, she was only getting R1,910. Upon following up with SASSA on the matter, she discovered that this was because Transnet was deducting payments from her grant for a Transnet policy that she never consented to. The deductions continued even after she had cancelled the policy. Though Robbie was eventually successful in stopping the deductions, the money owed to her is yet to be repaid.
This is not solely a South African issue. In 2022, the Transnational Institute published a study that examined experiences of fintech activity around the world. It found evidence that fintech interventions (such as M-Pesa in Kenya) had led to an explosion in over-indebtedness for many individuals that increased poverty and vulnerability.
Notably, the study also found evidence that many fintech companies, driven by pursuit of short-term gain, were ushering in a “new form of digital extractivism” that uses access to new markets in poor communities to reward shareholders and global investors by making profits. These profits are drawn from ‘digital mining’ whereby companies enjoy extraordinary profits from extracting “a small tribute from almost all of the tiny financial transactions made by the poor”. In this way, poverty has been reframed as a “new frontier for profit making” by fintech firms.
Despite the risks, policy makers like the National Treasury and the World Bank continue to see financial inclusion as a means of addressing poverty. In its 2023, Financial Inclusion Policy Framework for South Africa, the Treasury makes direct recommendations that social grants distribution must be leveraged to increase financial inclusion in South Africa.
This has already been set in motion by the closure of cash points for the collection of grants, forcing grant beneficiaries to receive their grant through a bank account.
Treasury and SASSA have another interest in grant recipients using bank accounts; conducting financial surveillance on grant applicants. Those applying for the R370 SRD grant have to allow SASSA to check the funds in their account. As we discuss in the final instalment in the series, this practice has led to the unfair exclusion of many people who are in fact eligible for the SRD grant.
After a decade of experimentation in countries like South Africa, even the World Bank was forced to conclude that it is “neither certain nor well understood” that financial inclusion can resolve poverty.
A new actor in the social grants payment space is Tymebank. Tymebank is an exclusively digital South African retail bank. African Rainbow Capital owns a controlling stake in the bank which was soft launched in 2018. As a digital only bank, it does not have any physical branches. It has partnered with Pick in Pay and Boxer as sites for its yellow card printing machines where customers can print their cards.
One of the core business objects for Tymebank has been financial inclusion. Young, rural, low-income women are among the most financially excluded and underserved individuals in South Africa and are an important target market for Tymebank.
In March 2023, The Citizen reported that Tymebank was offering interest-free early grant access to social grant recipients. In other words, Tymebank would offer grant recipients a portion of their grants before the grants are paid into their accounts. Though it claims to be an interest-free service there is a catch. The article explains:
“Grant beneficiaries whose grants are paid into a TymeBank EveryDay Account can access R500 from their grant before the grant payment date … Account holders do not pay additional fees or interest, provided the advanced amount is repaid when the next grant payment is received from Sassa. Whatever money was withdrawn will be deducted from the EveryDay account when the account holder receives the grant payment from Sassa.” [emphasis added]
This Grant Advance Service was also marketed on Tymebank’s official X page. This service applies to all grants except the R370 SRD grant. Though Tymebank executives claim that this is not a loan because there are no interest fees, there are still risks that these types of offers could contribute to over-indebtedness. The experience with Net1 also shows that without proper oversight and accountability, there are risks that more exploitative practices could be introduced.
In response to questions sent by Open Secrets, Tymebank Communications Manager Pontsho Ramontsha confirmed that the Grant Advance service does not apply to the SRD grant and that only recipients of other grants can access the service.
On the issue of protecting grant recipients from fraud related to their grants, Ramontsha said Tymebank has ‘stringent process controls to prevent and detect fraudulent activities; this is to protect all our customers across the economic spectrum’ including grant recipients. The bank also ensures that Grant Advance is offered to the rightful grant recipient by making it available only to customers that have a FICA verified EveryDay Account (bank account with biometric verification).’
On its role in the social grant payments, Tymebank stated that “SASSA went out to tender in March 2022, inviting banks to participate in the distribution of SASSA SRD grants. TymeBank was appointed as one of the participating banks to distribute SRD grants.” However, Ramontsha confirmed Tymebank does not have a relationship with Postbank.
TymeBank will be competing with more established South African banks as many grant recipients use traditional bank accounts to receive their grant. The biggest player in this regard is Capitec bank. In 2023, 26.5% of all social grant payments went to Capitec bank accounts.
Bank Zero had previously expressed interest in social grant payments but in response to questions by Open Secrets said it had no current role in payments.
A characteristic of financialisation is the growing role of retail companies in providing financial products and services. In South Africa, some of the large retailers – particularly Shoprite and Pepkor – are prime examples of this.
Shoprite is one of the largest companies in South Africa. Shoprite retail stores across South Africa are some of the primary spots where social grant recipients collect their grants using their SASSA cards. In March 2022, the Shoprite Group announced that it would offer SRD grant payments at 1,286 supermarket outlets following the extension of the SRD grant.
Shoprite has thus become a distributor of social grants for the state. Researchers have argued that this proximity to low-income groups has allowed for Shoprite’s operations to become more diversified and financialised. It is also a helpful way for Shoprite to get consumers into stores where they can spend their grant money.
Shoprite has its origins in Pepkor which is now Africa’s largest clothing retailer. Pepkor, in turn, has its own interests in the world of social grants through Flash, a company owned by Pepkor as part of its Fintech business. Flash is a technology company that provides hardware to informal traders around the country to enable them to sell data, electricity, facilitate bill payments, or even receive social grants.
In 2023, amidst its own struggles to manage grant payments, Postbank entered a contract with a company called Tembo Investment Group (TIG) to assist in grant distribution. TIG sub-contracted Flash, and Flash has become a key avenue for the payment of social grants via around 200,000 merchants. Grant recipients must bring a valid ID document and a cell phone number registered with SASSA, which Flash says it uses for verification. They can then receive their grant as cash at no charge. Flash has stated it had seen a rapid uptake by grant recipients thanks to the ease of collecting the grants.
Flash has become important to Pepkor’s business. While Pepkor reported largely disappointing profit in 2023, Flash processed R37.1-billion in transactions and contributed a 20% increase in revenue for Pepkor’s fintech unit. That unit now accounts for 10% of the group’s total revenue, and 67% of that comes from Flash.
In response to questions by Open Secrets, Shoprite’s media team stated: “The Shoprite Group facilitates grant payments for hundreds of thousands of beneficiaries across its network of 914 Shoprite, Checkers and Checkers Hypers supermarkets across South Africa.”
Shoprite confirmed that it has a contract in place with the Postbank for SRD pay-outs and that there is no contractual agreement in place between SASSA and Shoprite Group. However, it stated that, “The [Shoprite] Group attends a monthly operational meeting - facilitated by the CEO of SASSA and attended by various retailers, banks and cash agencies - where relevant stakeholders discuss important matters pertaining to grant payouts. A bi-annual meeting with SASSA and DSD [Department of Social Development], which consists of a physical process walkthrough and insights feedback session, also takes place.”
These companies may not currently be engaging in predatory behaviour, but the risks are clearly there. To address this, it is imperative that the state – particularly through SASSA and the DSD – provide the necessary oversight of the private companies involved in the social grants ecosystem. This is currently not the case. In 2023, Open Secrets, Black Sash and the Centre for Applied Legal Systems (CALS) reported that the mechanisms set up to provide oversight of the grants system had not been functioning for nearly four years. One of the largest social welfare systems in the world has been operating without adequate oversight.
In this context, it is little surprise that systemic problems in the payments system have gone unaddressed. In the next and final instalment in the series, we consider alternatives to the current system, and the perspectives of grant recipients on what the payment system should look like.
Open Secrets sent questions on the administration of social grants to to Flash and the Postbank. They have yet to reply.
Views expressed are not necessarily GroundUp’s.