United States-listed company Net1 was having a good week. On Friday it announced that it had signed up another 150 000 South Africans, mostly social grant recipients, to its EasyPay Everywhere accounts between February and April — the period during which the country was watching developments around the payment of social grants with deep trepidation.
That meant it now had nearly two-million people on its own banking system, Net1 told investors in a quarterly performance update.
More importantly, from a profit point of view, a month after the Constitutional Court said that Net1 subsidiary Cash Paymaster Services (CPS) would have to continue handling the payment of social grants in the face of a looming crisis, Net1 counted 330 000 customers in its life insurance business — mostly social grant recipients.
It hoped to expand these insurance sales, Net1 told its shareholders, but it warned of one hiccup: the South African Social Security Agency (Sassa) believed the mechanism underpinning those insurance contracts were illegal.
On Tuesday, however, the high court gave Net1 a resounding victory on that score. “A debit order is nothing more than an electronic form of payment that is effected upon an instruction by the bank account holder to his or her bank in favour of a third party,” Judge Corrie van der Westhuizen said in a judgment delivered in the high court in Pretoria.
In 2016, after working closely with civil society group the Black Sash, Sassa decreed that deductions may no longer be made from social grant payments. The Black Sash has long campaigned against such deductions, arguing that unnecessary financial services are mis-sold.
It has also documented instances of deductions that almost entirely wipe out grants, or which the clients found impossible to cancel.
The Net1 life insurance business — and related services the company offers grant recipients — depends on monthly debit orders, which were effectively outlawed under the new decree.
Sassa underlined that point by lodging a criminal complaint against CPS and its banking partner Grindrod for not cancelling all such deductions.
Net1, in turn, argued that the state was overstepping its authority, and being insultingly paternalistic about the roughly 17-million people who receive social grants every month.
“It is demeaning and unethical for our detractors to infer that 40% of all South Africans should not be treated equally,” said Net1 chief executive Serge Belamant on Friday, before the high court judgment. “It is their view that our clients lacked the intellectual ability to choose.”
Net1 went to court to ask for an order that would declare such debit orders legal. And, on Tuesday, the court obliged.
“The debit order levied against a recipient’s bank account is nothing other than payment of a legitimate debt,” Van der Westhuizen said in his written judgment.
Sassa does not control the bank accounts into which social grants are paid, he said; the relationship is between the bank and the account holder. So while Sassa can seek to control deductions made before a grant is paid to a recipient, its regulations “do not operate to restrict beneficiaries in the operation of their bank accounts”.
Sassa could not immediately say whether it will appeal. In the meantime, nothing prevents Net1 and CPS from moving ahead with the next phase of its expansion.
Ideally, Belamant told investors last week, Net1 would like to spin out its CPS grants distribution business, possibly with a new empowerment partner or through a private-public partnership. Then Net1 could “licence and provide technology to this new partner”, collecting royalties without getting involved in the messiness of legal challenges and civil society campaigns.
That would still leave Net1 free to sell financial services products to social grant recipients, especially those using its EasyPay accounts. It could then also look beyond funeral cover to even more lucrative areas of business, such as medical insurance.