Banks draw swords for R3-billion prize in South Africa
South African banks are reportedly set to battle each other for a slice of the state-owned Postbank’s R3-billion share of the social grants market, which will become available at the end of September 2025.
Social development minister Nokuzola Tolashe and the South African Social Security Agency (Sassa) briefed their Parliamentary subcommittee this week about the impending change.
This comes after Sassa terminated its Master Service Agreement (MSA) with the South African Post Office (Sapo), which insisted on the full 18-month notice period.
Tolashe explained that Sassa entered into a contractual relationship with the Post Office in 2018 after the Constitutional Court ordered government to terminate its unlawfully awarded Cash Paymaster Service (CPS) contract.
The Post Office’s liquidation in 2023 necessitated closing costly cash pay points and over-the-counter services, and the contract was ceded to Postbank.
In 2019, the South African Reserve Bank restricted Postbank from issuing new bank accounts until it resolved the issue of replacing its Sassa gold cards.
According to the minister, these were the main elements of the Master Service Agreement. Therefore, the withdrawal of these services means the MSA no longer serves its original intent.
Sassa informed the Parliamentary Committee on Social Development that the resources allocated to the Postbank for cash withdrawal services infrastructure will now be used elsewhere.
Specifically, it will be used to digitise Sassa’s business processes, including the biometric verification of all new grant applications that will commence on 1 September 2025.
While the minister has assured that no grant payments will be interrupted as the MSA ends, critics have expressed concern about the fees banks stand to earn from Sassa beneficiaries.
This is despite private banks distributing more than 80% of social grants. Most grant recipients are with Capitec (7.6 million), followed by Postbank (3 million), and African Bank (21 million).
Worries about Postbank losing the Master Service Agreement
Citing insiders and other anonymous sources, City Press reported that by failing to maintain the Post Office and Postbank, government handed private banks a lucrative opportunity to expand their low-income base.
They warn that grant recipients will now potentially face increased bank costs and reduced access points in rural areas where there are few bank branches.
The insiders also reportedly bemoaned private banks “taking full control” of grant beneficiaries with “no competition”.
This is flawed reasoning. There are 22 approved banks in South Africa to compete for the three million grant recipients the Postbank used to serve.
While it would have been great for grant recipients to have the option of a service like Postbank, where taxpayers foot the bill for the banking charges, this has clearly proven unsustainable.
Before the Post Office’s provisional liquidation, which was overturned in favour of business rescue, former CEO Nomkhita Mona repeatedly said that the institution was making substantial losses on dispensing grants.
Since the government has proven it cannot effectively and sustainably run a bank, it is much better for private financial institutions to compete for these customers and charge sustainable fees for their services.
This allows grant beneficiaries to select the bank with the most competitive offer, and change banks if a better option comes along.
Grant payment failure
To fully appreciate the scope of the issue, it is necessary to return to 1999, when financial technology innovator Net1 UEPS acquired Cash Paymaster Services from First National Bank of South Africa.
Bidding on the tenders to provide social security payments to South Africans proved to be a fateful decision for Net1 founder and former CEO Serge Belamant. The other was listing Net1 on the Nasdaq in 2005.
Belamant explained that when they first acquired Cash Paymaster Services, social security was run at a provincial level, with a handful of companies bidding against one another for the contracts.
After a bid was adjudicated, the losers would inevitably let fly allegations of corruption against the winner. “Candidly, we can’t blame them because we used to do the same thing,” Belamant said in a BizNews interview.
“When we lost Mpumalanga and Gauteng, we also said there was corruption.”
In 2012, Net1 landed in court over the national Sassa tender. The matter went all the way to the Constitutional Court several times, with the apex court handing down three separate rulings in 2013, 2014, and 2015.
The Net1 contract was declared invalid due to procedural irregularities, and Belamant said their competitors agitated for U.S. authorities to investigate the company thanks to their Nasdaq listing.
Net1 was investigated by the Securities and Exchange Commission (SEC), the U.S. Department of Justice (DOJ), and, indirectly, the Federal Bureau of Investigation (FBI).
While the SEC closed its investigation in 2015 and the DOJ closed its investigation in 2017, the damage was already done.
In 2015, Net1 withdrew from the R10-billion Sassa tender. Among the allegations against the company was that it had a conflict of interest as it also provided financial services to grant beneficiaries.
Belamant told BizNews that rather than face another lawsuit and FBI investigation, they would rather let Sassa bring its infrastructure in-house and provide financial services independently.
Even if only three million out of the ten million grant beneficiaries at the time elected to use Net1’s services, Belamant told BizNews they would continue to provide their products.
However, Belamant was ousted from his company in 2017. At the same time, South Africa’s social welfare system was plunged into crisis as Sassa had not adequately prepared to take over from Cash Paymaster Services.
After the Constitutional Court allowed Sassa to renew Net1’s contract to ensure grants get paid for another year, the Pretoria High Court ordered Cash Paymaster Services to refund Sassa R316.45 million in 2018.
As a result, Cash Paymaster Services was liquidated in 2020. It applied for business rescue, which Sassa opposed, stating it did not have a viable business plan. After its demise, Net1 rebranded to Lesaka Technologies.
Sassa cybersecurity disaster
The South African Social Security Agency’s failure to run a procedurally sound tender plunged the country’s welfare system into chaos from which it has not yet recovered.
Besides the uncertainty created by the 2017–2018 grants crisis, the government’s in-house systems have proven woefully insecure and exposed Sassa to theft and fraud.
In 2021, former social development minister Lindiwe Zulu revealed that Sassa had to replace all the cards issued to pensioners and grant recipients because the Postbank’s “master keys” had been compromised.
Reports at the time revealed that the bank’s master key was stored in plaintext during a data centre migration in July 2018. Two staff members stored the plaintext key on USB flash drives, and one of the drives went missing.
Between 16 and 28 October 2021, cybercriminals made off with at least R89,459,330 in cash fraudulently transferred to 279 Sassa accounts and withdrawn at ATMs using cloned cards.
The discovery of the fraud was coincidental, with a call centre operator flagging a Sassa beneficiary account they noticed had an unusually high balance of just under R100,000.
In 2024, two Stellenbosch University computer science students, Joel Cedras and Veer Gosai, uncovered massive fraud in South Africa’s Social Relief of Distress (SRD) grant system.
While identity verification weaknesses at banks and mobile virtual network operators helped enable the fraud, Sassa also did not validate whether applicants qualified for grants in the first place.
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