Don’t judge us on CPS standards, pleads Post Office

Lindiwe Kwele, second-in-charge at the South African Post Office, is astonished at suggestions that the state organ will flounder in taking on the mammoth role of paying all 17 million social grant beneficiaries over the next three months.

As the Post Office’s chief operating officer, Kwele has taken umbrage with observers likening its services to that of current social grant distributor Cash Paymaster Services (CPS), a subsidiary of tech giant Net1 UEPS.

“If you are going to judge our ability to deliver grants based on what CPS did, then I wonder who said the CPS solution is the be all and end all,” Kwele tells Moneyweb. “People expect us to replicate the CPS model of payment because that’s what they are used to. It’s not fair.”

The Post Office is already the social grants distributor, having taken over a large portion of grant payments from CPS in April 2018. The state organ is now primed to administer cash payments to 2.5 million remaining beneficiaries when CPS’s contract with the South African Social Security Agency (Sassa) expires on August 31, 2018.

These are elderly and disabled beneficiaries who don’t own bank accounts but access their grants in a physical cash at CPS vehicles kitted with its biometric technology – cash-in-transit style. If the Post Office successfully becomes the paymaster, it means the role of grant payments would exclusively be in the state’s hands.

Arguably, concerns about the Post Office’s readiness are warranted given how Sassa’s own efforts to phase out CPS’s contract is beset by controversy. The Constitutional Court was forced to extend CPS’s illegally awarded contract twice; former Social Development Minister Bathabile Dlamini left Sassa in ruins, and commercial banks were deliberately excluded from Sassa contracts. These are just a few scandals bedevilling Sassa.

Post Office progress

“We are confident that we will take over grant payments,” says Kwele. “Most people didn’t know that we could pay grants. They are basing their judgement on our ability to deliver mail.”

She says a new service agreement between the Post Office and Sassa was signed on June 19 to reflect the former’s new task of administering cash payments to an additional two million beneficiaries.

Under the agreement, the beneficiaries will be issued with new Post Office/Sassa branded cards, which will replace the currently used Sassa/Grindrod Bank (a partner of Net1) cards. The rebranded ones can be used by beneficiaries to withdraw their grants over the counter at 856 Post Office branches across SA, any of its merchants (such as Shoprite) or agents, and ATMs run by commercial banks.

If beneficiaries are unable to access any of the Post Office branches they can use the 1 070 banking infrastructure (ATMs) or 1 638 merchants in the National Payment System. “We are opting for electronic payments as opposed to paying beneficiaries with physical cash and having armoured vehicles transporting cash,” says Kwele.

Criticism

A panel of experts appointed by the Constitutional Court to monitor Sassa’s progress in phasing out CPS’s contract is fiercely critical of the Post Office. The panel members include, among others, Auditor General Kimi Makwetu and former Reserve Bank governor Gill Marcus.

In its sixth report submitted to the court on June 14, the panel flagged concerns about the Post Office missing key targets, adding that parts of its services might not be ready as early as July 2018.

It’s also concerned about the cost implications of having the Post Office as the exclusive service provider.

“The Post Office might in future hold Sassa hostage – so to speak – by extracting as much revenue as possible from rendering services to Sassa, unless a clause in the [service] agreement requires a regular independent review of the technological options and cost effectiveness of the Post Office service,” the report reads.

It adds that the Post Office will require a R541 million pre-investment from Sassa in year one of paying social grants. The pre-investment might increase substantially as the Post Office is still waiting for its full banking licence from the Reserve Bank, the panel warns. In the interim, the Post Office is piggybacking off Standard Bank’s licence and services.  

Kwele says further pre-investments from Sassa are required as the Post Office agreed to take on more grant beneficiaries than it initially anticipated – thus, its original grant payment system investment of R1 billion wouldn’t suffice. “We have to recover any additional infrastructure costs to accommodate more beneficiaries.”

The panel doubts that the Post Office will meet its targets of replacing Sassa/Grindrod branded cards with Post Office/Sassa cards. Sassa and the Post Office failed to meet their card replacement/swap target of 214 520 for May 2018, as only 85 118 cards were actually replaced during the month (see below).

“We have acknowledged that this is a huge project,” says Kwele. “It took CPS 18 months to do this and we are expected to do this in four months.”

So far in June, the Post Office has already replaced over 500 000 cards. The stakes are high if the Post Office doesn’t meet its targets. The worst-case scenario is that CPS’s contract might be extended again – for the third time.