Electronic payments company Net1 UEPS Technologies has launched a court challenge of a government decision to limit direct deductions from social grants.
Net1 division Cash Paymaster Services (CPS) won a R10bn grants tender from the South African Social Security Agency (Sassa) in 2012.
CPS currently helps Sassa electronically distribute grant payments to more than 10m recipients in South Africa.
However, Net1 — which is listed on the JSE and New York’s Nasdaq — has come under fire for selling mobile airtime and insurance products to social grant beneficiaries by deducting funds via debit orders.
Sassa’s executive manager for grants administration, Dianne Dunkerley, said the state-owned agency received 46 705 deduction enquiries in February this year alone.
Amid this situation, social development minister Bathabile Dlamini last month announced revised regulations to the Social Assistance Act, which halt unauthorised and unlawful deductions.
The department of social development further ordered that from June 1, no money would be deducted money from Sassa beneficiaries except for one funeral policy per beneficiary. These funeral policies should also be worth more than 10% of a beneficiary’s total grant, News24 reported last month.
But Net1 announced late on Friday that it has has filed for a declaratory order in the high court in Pretoria to “provide certainty” on the interpretation of the new regulations. The court application is expected to be heard before the end of June, said Net1.
“The company (Net1) interprets the meaning of the word ‘deductions’ to be specific to the practice of collecting life insurance premiums from grants, before the grants are paid to social welfare beneficiaries’ bank accounts, and is of the opinion that the legislature did not intend to curtail the right of beneficiaries to transact freely once the money is deposited into their bank accounts,” said Net1 in a Sens statement to shareholders.
“Sassa seeks to lend a broader interpretation to the meaning of the term ‘deductions’ to incorporate any debit orders, EFT debits, purchase transactions or fund transfers that are effected after the transfer of social grants to beneficiaries’ bank accounts.
“If Sassa’s interpretation were to prevail, debit transactions could no longer be used as a method for beneficiaries to make regular payments for financial services such as insurance premiums, loan re-payments, cell phone contracts, money transfers or any other recurring payments,” said Net1.
The company further said that “forcing beneficiaries to pay for these products or services in cash would be a major setback to the national objective of financial inclusiveness, introduce financial and security risks for beneficiaries and result in significant price increases for these products and services.”
Net1, in its statement, added that it believes Sassa’s interpretation of the law and regulation is “erroneous” and that it limits grant beneficiaries’ constitutional rights by hindering their ability to enter into contracts.
“Sassa’s interpretation effectively prohibits the social welfare recipient community from enjoying the benefits of a convenient, low-cost, reliable and ubiquitous payment system that enables the recipients to procure financial services at highly competitive rates,” added the company.
Net1 is further challenging the dispute rate among grant recipients.
“Currently, grant beneficiaries effect more than 15m debit transactions per month, involving more than 1 300 financial services and product providers. According to Sassa’s statistics, 18 800 transactions were disputed during the 2015/2016 fiscal year, which is far below the 0,5% industry benchmark for disputed transactions and represent less than 0,01% of all debit transactions processed during the period,” said Net1.
The controversy around debit orders is just one of many to hit Net1 in recent years.
In 2014, the constitutional court ordered Sassa to reissue its grants tender amid the state-owned agency’s “irregular” conduct in awarding the contract to CPS. Last year, Net1 announced that it doesn’t plan to reapply for the Sassa tender. However, CPS is expected to hang on to the contract until its expiry in 2017.
