Net1’s lending practices last week prompted Allan Gray, the biggest shareholder of Net1, to express its discomfort over the controversy. Net1’s subsidiary, Cash Paymaster Services (CPS) has the contract to distribute welfare grant payments to about 17 million beneficiaries.
Following a Constitutional Court ruling last month, CPS signed an addendum to its existing contract with the South African Social Security Services(Sassa), which extended the contract for 12 months to March 31, next year.
But Net1 has been in the spotlight over accusations that it was exploiting the social welfare beneficiaries through unlawful and unauthorised deductions from their bank accounts.
Under pressure from some of its shareholders, Net1 earlier this month hired KPMG “to address certain frequently asked question asked by the various stakeholders”.
In a statement after it made the KPMG report public, Net1 said it had noted with concern “ongoing, repetitive and false accusations” regarding its business practices. Citing the KPMG report, Net1 dismissed the allegations against it.
The company said it had brought KPMG on board to review its business practices “and to provide us with a factual findings report that addresses the accusations against us”.
Net1 said, in line with the Constitutional Court order, the addendum to the contract between CPS and Sassa contained provisions to ensure that personal data obtained in the payment process remains private and may not be used for any purpose, other than the payment of grants.
The order also precluded a contracting party from inviting beneficiaries to “opt-in” to the sharing of confidential information for the marketing of goods and services".
"CPS complies fully with the order and does not share any Sassa beneficiary data with other Net1 subsidiaries,” the company said. Its subsidiaries that provide financial services, such as Moneyline Financial Services, had no access to the data, it said, adding that CPS charged Sassa a fixed service fee of R16.44 per grant recipient per month, irrespective of the number of grants paid to each recipient.
“This fee includes the cost of the Sassa-branded smart cards issued to each recipient and the costs of capturing and analysing the relevant biometric information of each new grant recipient. The price also includes the monthly payment of R11.6billion to 10.6 million grant recipients, of which R4.5bn is transported in cash."
Net1 denied that its subsidiaries sold financial services and products through CPS. “Net1’s Moneyline and Smart Life sales' teams do not market or sell products inside the secured area of paypoints and are treated no differently from the many other service providers present near pay-points.
"Neither CPS nor any other Net1 subsidiary force or require social grant recipients to open EasyPay Everywhere ‘green card’ accounts,” it said.Net1, however, said CPS processed so-called Regulation 26A deductions for life insurance premiums payable to third-party service providers of life insurance.
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“Thousands of service providers process millions of debit transactions against South African bank accounts every month. Net1’s financial services' subsidiaries follow the same processes through the National Payment System, with no priority or preference over any other service providers."
It said Grindrod account holders, including grant recipients, could purchase prepaid airtime and electricity utilising the Grindrod Bank mobile channel. Grindrod Bank offered banking services to the social welfare beneficiaries.
Net1 said it provided the technological platform for the purchase of the airtime and electricity and denied that its subsidiaries made recurring and unauthorised monthly deductions or debits for prepaid airtime or electricity.
“Customers, including grant recipients, buy airtime or electricity on demand and cannot subscribe for a recurring service. The costs of such purchases are settled as sales/purchase transactions against their bank accounts in the same manner as all other South African banks and similar service providers and merchants,” CP said.
The company also denied that its subsidiary, Moneyline, charged interest or excessive fees on its loans.
Net1 said its study had shown that its total costs were lower than the total costs of other regulated micro-lenders.