The South African Reserve Bank (SARB) and South African Social Security Agency (Sassa) appeared before the Portfolio Committee on Social Development to give account of the payment synergy they are working on to avert the concentration of risk and illegal deductions from social grants by unscrupulous financial services providers and mobile phone operators. This briefing comes on the eve of the end of the contract of Cash Paymaster Services, a company charged with the task of distributing social benefits payments on behalf of Sassa.
The Chairperson of the Portfolio Committee on Social Development, Ms Hope Malgas, stated the reason for this briefing: “This briefing is in line with our Committee’s resolution to determine Sassa’s readiness to implement a payment system that is risk-free and that can deal with the illegal pension deductions currently experienced by the beneficiaries of grants. In that, we have undertaken to meet SARB, the Treasury, the Department of Social Services and other related entities to avert any risks that can hamper the payment of grants,” she said.
The Head of the National Payment System Department at SARB, Mr Tim Masela, gave a context to clarify the mandate of SARB and the role of its National Payment System and its relation to the mandate of Sassa: “The responsibility of organising and developing the social benefit payment systems rests with Sassa, supported by the Department of Social Development, not SARB. As a regulator and overseer of its National Payment System, we had numerous engagements with Sassa and the department, relating to options they may consider regarding their transitional and future plans for social benefit payments,” he said.
He further stated that SARB was not involved in the planning and implementation of Sassa’s social benefit payment, and its payment company, Cash Paymaster Services, has come under great scrutiny for its concentration of risk by appointing Grindrod, a relatively small bank with limited infrastructure and no branch network. “When Grindrod and Cash Paymaster Services could not cope with the volumes of payments, we established a coordinating working group to address and assist the negative impact this had on the National Payment System. The current system is a result of that and has been stable since 2012,” he said.
SARB is now actively involved in setting up an inter-operational system to mitigate the concentration of risk to one system of payment, he said. “This approach will allow a beneficiary to select an account at a bank of his or her choice and a set of products and services. This could include a number of free withdrawals. This open co-branded offering would limit the need for a ‘winner takes all’ tender approach and promote competitiveness in the financial services environment.
“The other possibility is that Sassa can effectively become a bank in its own right,” he said. “This will result in Sassa taking responsibility of almost all aspects of the payment value chain. This will see Sassa operating as a bank and hosting beneficiaries’ accounts.”
He further added that SARB will support a transitional option chosen by Sassa that will ensure a continued payment of social benefits without any interruptions.
Ms Bridget Masango wanted to know why SARB was not involved in the planning and execution of Sassa’s current payment system, and why it allowed that to happen. Mr Masela replied: “It was not our space to dictate what they must do, ours was to advise them what to do. Now we have dedicated options to clear the system and to ensure that it works well.”
“Does Sassa accept your recommendations and how long it will take to implement them,” asked Ms Nokulunga Sonti.
He replied: “It is up to Sassa to choose which one they opt for. Also, I cannot tell how long the new recommendations will take. Beneficiaries have to get out of the old system and get enlisted to a new one. These processes take long, hence it is difficult to determine how long the new process will take.”
The Director-General of the Department of Social Development, Mr Zane Dangor, said they are considering the options presented to them by SARB. “We are considering the options that SARB has come up with. But we still need to make our inputs with regard to regulation, the policies we want to see implemented to safeguard grant beneficiaries. And to address some of the perceived risks involved in its recommendations.”
“Do these new recommendations address the issues of illegal deductions asked Ms Nokulunga Sonti. “I am asking this because there are old pensioners in rural areas where I come from whose grants get illegally deducted for products they don’t consume, such airtime and electricity.”
On illegal deductions, Mr Masela said the service providers who make deductions should comply with regulations. Some are contravening them. “It is against the spirit of Sassa. We need to put terms of what is allowed and what is not. In terms of assistance, we asked for the terms and conditions of the Grindrod Bank. We can only apply ourselves to the Grindrod Bank, other participants are regulated by other entities. But going forward, we need to stream line the regulatory framework of the financial service sector.”
There is no exemption on deductions, there is abuse in this space. There are parties involved in there, it needs to be addressed through whatever solution that can be found, he said.
“SARB, your mandate is clear, but you did not conduct your due diligence to forecast the risk posed by the appointment of a small bank such as Grindrod to distribute grants,” protested Ms Pulani Mogotsi.
Mr Masela replied: “Grindrod was not appointed by Sassa, it was recommended by Cash Paymaster Services as a bank of choice to undertake payments. It formed part of the Cash Paymaster Services’s agreement with Sassa.”
Mr Masela went on to clarify that: “Grindrod should have alerted us about its involvement. Furthermore, they did not recognise the volume and magnitude of this service, hence the spike and the chain reaction that crashed payment systems early on. We got involved while the system was alive. We could not stop it without causing disruption.”
The Director-General of the Department of Social Development agreed that the proposals put forward by SARB could reduce risks. “Post Bank is an option in the future but not now. If they are part of SARB’s National Payment System they can be a big player in this space.”
His main concern is how to infuse their regulation to those of SARB on deductions because it is a competency that does not fall within their legal scope. “The deductions are more to do with polices. That is particularly important. We also need to determine the recourse to deductions to ensure that there is administrative justice. Other transactions are deemed illegal. We need to legislate and publish what is expected in this environment. And we cannot do that outside SARB’s regulatory framework,” he said.
He also confirmed the desirability of turning Sassa into a bank, something which he considers to be a viable option. “In other countries such as the Netherlands, the counterpart of Sassa there is a bank. This would not be something unique, it is already a practice in other countries.”
In conclusion, the Chairperson said there were many lessons learnt out of this briefing. One of which is how Sassa can conduct its risk management in the future. “This briefing is not about the present, but the future potential of Sassa as a competent entity charged with the task of dispensing social benefits. It is about future risk management mechanisms. Also, the uprooting of the unscrupulous conduct of illegal deductions by some of the institutions you are working with in your space is important to us. We are happy that the department has taken this matter to the court. We need more updates and interactions on your actions on this moving forward,” she said.
By Abel Mputing
1 March 2017
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