Post Office: Is its offer to pay social grants affordable?

Awarding a social grants payment contract to the South African Post Office has been widely hailed as being an affordable option for the fiscus.

Affordable, because the role of paying social grants to more than 10-million of SA’s poor would be in the hands of a state-owned entity instead of a profit-driven private company.

The stage is now set for the Post Office to take over social grant payments from April 1 2018, as the state-owned entity is expected to sign a final contract with the South African Social Security Agency (Sassa) in December.

Not only have questions emerged about the Post Office’s readiness to be the paymaster in the next five months – impossible some have argued – but whether it’s really able to deliver payments in a cost-effective manner.

A Constitutional Court-appointed panel of experts has contradicted the Post Office’s pricing model in paying social grants, saying it’s more expensive than the rate charged by incumbent distributor Cash Paymaster Services (CPS).

The panel of experts – appointed by the court to oversee the process to phase out the CPS contract by March 31 2018 – includes the Auditor-General Kimi Makwetu, Anthony Felet, Gill Marcus, Tim Masela, Heinz Weilert, Angela Bester, Werner Krull, Mavuso Msimang, Doris Tshepe, Mmamolatelo Mathekga and Barend Taute. They are supported by secretariat Marissa Bezuidenhout assisted by Walter Bhengu and Paklo Leung.

The panel of experts warned that if the Post Office’s cost structure in social grants payments is adopted, it would result in an additional R2 billion of annual operating costs to Sassa’s payment system by a five-year period.

To reach this figure, the panel of experts relied on the Post Office’s operating cost estimates when it submitted a bid for the Sassa tender.

The panel of experts said Sassa continues to pay CPS R14.42 plus vat per social grant recipient, while the Post Office has proposed a higher price of R21.50 plus vat. This service fee is 49% higher than that of CPS. The Post Office has also proposed a 6% per annum increase from the base price (R21.50) for four consecutive years after being the paymaster.

“The panel believes these proposed price increases are opportunistic and made only possible by the lack of competing for bid [for the social grants contract],” it said.

The Post Office has proposed paying social grants through its 2 000 outlets across the country, using the services of its Post Bank to deposit money into accounts and using cash-in-transit services to deliver cash to pay points for beneficiaries without bank cards in far-flung areas.

The divergence in the cost per beneficiary is due to the Post Office’s pending capital investments for the distribution of social grant including the acquisition of new Post Bank ATMs, cash pay point and branch infrastructure, and point-of-service devices.

The panel of experts said the Post Office argued that its offering to beneficiaries is “superior than CPS’ current offering” as it includes a certain number of free cash withdrawals at ATMs.

The Post Office’s capacity to pay social grants has been called into question, with the panel warning on numerous occasions that it doesn’t have a full banking license and has raised concerns about its financial losses and the government guarantees of R4.4 billion it has enjoyed since 2014 for its on-going turnaround strategy.

The panel of experts has instead recommended the use of SA’s banking system for social grant payments. It said 43% of beneficiaries are believed to already own bank accounts at a bank of their choice and Sassa could process payments from its bank account directly to these beneficiaries. Banks would have to offer low-cost accounts to beneficiaries that are not banked.

Using this model is expected to give beneficiaries the choice of a service provider and payment channel, and exposure to a highly-regulated banking system.

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