G2P payments in South Africa, banking millions?

The South African government, through the South African Social Security Agency (SASSA), provides social assistance in the form of monthly payments to around 16.9 million beneficiaries including qualifying children, pensioners, war veterans and people with disabilities. Grants vary from R350 per month (approximately USD 25) for a child support grant, up to R1,500 per month (USD 107) for an Older Persons grant. In the 2015/16 financial year R130 billion (USD 9 billion) was paid out to beneficiaries^[1].

Prior to 2012, beneficiaries received their grants in cash, with a minority opting to receive their funds into a bank account. This system was costly, cumbersome and open to fraud. The Department for Social Development and the South African Social Security Agency (SASSA) therefore decided to migrate social grant payouts to an electronic, biometric payment system. The R10 billion bid to migrate payments to an electronic platform was awarded to Cash Paymaster Services (CPS), a subsidiary of Net1 UEPS technologies^[2].

Currently, CPS enables roughly 10 million recipients to receive grant payment directly into a bank account underpinned by Grindrod Bank^[3] known as a SASSA account. The account’s biometric functionality uses unique identifiers including fingerprints and voice to ensure that only approved beneficiaries can collect their grants. Account holders are issued with a Mastercard branded debit card and can withdraw funds free of charge at SASSA cash pay-points or at participating merchant stores. Funds can also be withdrawn from any ATM where normal bank fees apply. Account holders are also able to swipe their cards to make payments at point of sale terminals, and can purchase airtime and electricity using USSD functionality on their cellphones.

Until recently, the accounts enabled third parties such as credit and insurance providers to access funds in the account by means of a direct debit, known in South Africa as a debit order. In June 2016, 2.4 million grant beneficiaries had one or more debit orders on their accounts^[4]. There is no data on how many of these debit order instructions were initiated by subsidiaries of Net1 UEPS.

Towards or against the goals of financial inclusion?

In a press release dated May 6 of this year the Minister in the Department of Social Development announced that debit orders off SASSA accounts would be severely restricted^[5].

On the face of it, the cause of financial inclusion in South Africa has been dealt a terrible blow. By limiting the account’s functionality the Minister has prevented SASSA account holders from having access to credit and insurance products where premium and installment collection is facilitated by debit order.

Indeed, it would appear from the Minister’s press release that some in the financial sector had lobbied hard to prevent this, arguing exactly this point. To quote from that press release; “Earlier this year, we published a set of regulations for public comments aimed at clarifying existing legislation in terms of what is legally permissible and the level of consent required for a deduction from a social grant. We received a flood of comments from the financial services industry asking us why we are doing this. Why do we want to restrict people’s rights to choice? Why are we going against the goals of financial inclusion and creating access to financial products for low-income earners?”

The Minister’s answer, as per the press release is “simple.” Of course, matters such as this are seldom simple, but the Minister’s argument was bolstered by strong anecdotal evidence of beneficiaries who have been pressured into purchasing products they did not need, or whose money had been deducted off their accounts without their knowledge. To quote her press release once again: “It is very easy to take the money of social grant beneficiaries without proper consent and controls. However, it’s very difficult for them to get their money back”.

More recently, in written answers provided on September 18 to parliament, the Minister of Social Development reported that a total of 44,142 complaints relating to airtime, electricity and loan deductions had been received by her department since May 16. Of these 38,357 had been resolved and “blocked not to allow any further deductions from recurring”. In 5,785 cases, beneficiaries had been refunded.

The Minister’s impulse to eliminate this problem by restricting the transactions functionality of the account is understandable. However, a better response might have been to eliminate the problem by enhancing the control functionality of the account. Unlike other bank account holders, SASSA account holders do not receive SMS notifications of transactions. Nor do they get regular bank statements^[6]. Clearly, given the limited information available, account holders struggle to keep track of flows of funds into and out of the account. This may, in part, explain why account holders report withdrawing funds as soon as they are deposited into the account.

Quite simply the control functionality of the account is not adequate for its transactions functionality—the former does not support the ability of account holders to control their money, which is one of the primary purposes of a bank account.

Beyond this, limited flows of information to account holders directly expose them to abuse, particularly where deductions are initiated by third parties, as is the case with debit orders. Of course, debit orders offer significant benefits, not only to the third parties who need a reliable mechanism to collect funds, but also to consumers who value the convenience of the mechanism. Where debit order functionality is enabled, the minister could insist on a commensurate control function on the account that would require notification of pending deductions, possibly even authentication and permission, as well as meaningful access to mechanisms to query or reverse unauthorized transactions.

A second issue relates to oversight of account activity by SASSA itself. As noted, the Minister’s press release highlights a number of specific cases of abuse, naming individuals and telling their stories. It is of course, very important to do this, and to bring home the very damaging impact of abuse on the lives of consumers who are poor and vulnerable.

At the same time, it is equally as important for the Minister to publish hard facts about the scale of abuse. This is where so called “big data” comes into the picture. Given that all transactions and instructions to transact are digital, there must be an extensive data trail pertaining to every transaction on every account. The CPS contract explicitly allows for SASSA to request and obtain data. To quote from that contract^[7]: “The Contractor shall ensure that SASSA is able to access the electronic data in respect of Enrolment, Payment information, statistical information, management information and any other agreed upon relevant information at any given time”.

It is therefore entirely feasible for SASSA to conduct an extensive analysis of this data.  Not only would this allow the Minister to assess the extent of irregular transactions, it would also enable the Minister to flag suspicious transactions and notify account holders of possible fraudulent activity on their accounts.

A case study of financial inclusion gone wrong

Many would characterize the distribution of social grants in South Africa as a severe disappointment from a financial inclusion perspective. Putting aside the concerns regarding corruption, and the worrying allegations of customer abuse, the limited functionality of the product with regard to notifications and statements makes it impossible for users to manage their money effectively, and places them at risk. Clearly, this particular solution was developed to meet the cash distribution need of the State and not the financial needs of the target market. The political response to limit the transactional functionality of the account, and to make SASSA responsible for distributing social grant payments in the future, impedes the possibility of inclusion going forward.

In this digital age of big data and analytics, it is puzzling that regulators and State agencies did not do more to monitor and assess the customer experience rigorously, and that a deliberate reporting plan in this regard was not explicitly incorporated as part of SASSA’s oversight role. While it may seem unfair to blame the State for what might be the bad behavior of the private sector, we would argue otherwise. It is the job of the private sector to maximize profits. That they do this sometimes with insufficient heed to the ethics of their actions is, needless to say, disappointing. But it is not altogether unexpected. It is precisely this temptation within profit driven entities that justifies the existence of regulators whose job it is to actively monitor the activities of the entities they regulate.

That they have failed to do so in this case creates enormous risk, not only for grant recipients but for regulated entities within the financial sector as a whole. It is quite simply untenable for account holders in the formal financial sector to be serviced with products that manifestly prevent them from managing their money, and that appear to place them at risk of fraudulent deductions off their accounts.

Given the tone of debate in South Africa on transformation and inequality, the banking sector and all those who continue to work hard to promote the cause of financial inclusion cannot afford to be associated with allegations of customer abuse.

In light of the failure of regulators, arguably the sector itself should act to investigate allegations of abuse rigorously and to implement a set of minimum norms and standards regarding all bank accounts in South Africa to ensure that account holders can effectively manage their money.

Important lessons to learn from South Africa’s G2P story

While the South African story is a sad one, it provides important lessons for other countries who might consider extensive Government-to-Person (G2P) implementations. The most important lesson by far concerns data. Aside from ensuring that account holders have access to the data they need to manage their money, any agency considering an implementation must ensure that contracts are clear as to who has what rights to account level data, what fields need to be retained, how, and for how long. Contracts also need to be clear on which government agencies or regulators have the right to investigate account level activity. Finally, during the sign-up process customers will need to provide the necessary consents for their data to be used to support such investigations.

Of course, all these provisions are meaningless without a clear plan to mine account level data on an on-going basis. They are also meaningless unless regulators commit to publishing sufficiently detailed data on account usage patterns, as well as take up and usage of other financial products offered to account holders. The regular flow of relevant and reliable data to account holders, to regulators and the public at large is critical to build and maintain trust, the primary currency that underpins the financial sector.

Authors: 

Illana Melzer, Director of Strategic Research at Eighty20 

Claire Hayworth, Senior Consultant & Jessica Robey, Senior Analyst at Eighty20

With special thanks to Guy Stuart from Microfinance Opportunities for his assistance in reviewing and editing this blog

See more of Eighty20’s research here

Footnotes

[1] National Treasury Budget 2015. Estimates of National Expenditure http://www.treasury.gov.za/documents

[2] http://www.politicsweb.co.za/opinion/cash-paymaster-services-wins-r10bn-grant-tender–s

[3] https://www.grindrodbank.co.za/Pages/Sassa Note: the number of account holders is less than the number of grant beneficiaries because parents or guardians may collect multiple grants for children or people under their care

[4] Net1 UEPS: Anti-social grants? BY ANN CROTTY, Financial Mail, JUNE 30 2016, available at:  http://www.financialmail.co.za/moneyinvesting/2016/06/30/net1-ueps-anti-social-grants

[5] Media statement by the minister of social development, Ms Bathabile Dlamini, MP, on the occasion of the media briefing on unauthorised grant deductions. Friday, 06 May 2016. Available at: http://www.dsd.gov.za/index.php?option=com_content&task=view&id=799&Itemid=1

[6] According to the SASSA account Ts&Cs, account holders “can contact the CPS Call Centre on 0800 600 160 (toll free from a landline) and ask for a statement (to be sent to you)”. According to the All Media and Products Survey (AMPS) 2015, 5% of adults who receive social grants have a landline at home

[7] See https://www.sec.gov/Archives/edgar/data/1041514/000106299312000404/exhibit99-2.htm

Top image: Alone, Flicker image credit Jan Truter.