On 13 February last year FSS Technologies, the service provider which manages the social grant payment system for Postbank, pulled the plug on grant access for two hours\u00a0\u2014\u00a0the dramatic culmination of months of fruitless negotiations to get the state-owned company to pay for a key part of the service FSS provides.<\/p>\n
A Postbank board memorandum, dated 15 September, written by then-interim chief executive Molatlhegi Kgauwe read:<\/p>\n
\u201cAbout 120 000 beneficiaries amounting to about R204 million could not access their grants as management frantically engaged FSS to restore the service.\u201d<\/p>\n
These numbers seem to refer only to people who tried to transact or withdraw cash in those two hours.<\/p>\n
By 19 February, following the \u201cfrantic\u201d engagements, a Heads of Agreement (HoA) was signed with FSS Technologies, the Indian provider of Postbank\u2019s Integrated Grant Payment System (IGPS), to pave the way for a system of per-transaction payments.<\/p>\n
Later, external lawyers said the HoA was unenforceable or even unlawful, leading to a conundrum for Postbank: keep paying and break the law or don\u2019t pay and risk collapsing the social grant system.<\/p>\n
\u201cThe impact of not being able to pay grants would have been untold suffering of the innocent beneficiaries and a possible national crisis as well as irreparable damage to Postbank’s reputation and goodwill,\u201d Kgauwe wrote in his board memo.<\/p>\n
According to Kgauwe, the shaky deal allegedly led to at least two other credible threats to shut down the grant system in September last year.<\/p>\n
National Treasury has to date not been formally asked to condone this \u201ccontract\u201d, which was effectively agreed to without a tender.<\/p>\n
The interruption of service led the South African Social Security Agency (SASSA) to fine Postbank R17-milion for the breach of its contract, under which Postbank makes grant payments on behalf of SASSA.<\/p>\n
At issue is a crucial additional service to the IGPS called a payment switch, which FSS had provided to Postbank free of charge for two and a half years without any written contract.<\/p>\n
The switch is a system for matching two ends of a transactions. Without a switch, Postbank would have no access to the national payment system and grant recipients would not be able to withdraw funds from other banks\u2019 ATMs or use pay points with their SASSA cards.<\/p>\n
The free use of the FSS switch was meant to be a six month transitional arrangement after the South African Post Office (SAPO) took responsibility for grant payments in 2018 and pending the upgrade of its own existing payment system called Postilion.<\/p>\n
The contract with SASSA to distribute grants was subsequently ceded to SAPO\u2019s subsidiary Postbank. This transfer is a step towards the planned unbundling and corporatisation of Postbank as a standalone entity.<\/p>\n
SAPO\/Postbank, however, have failed to upgrade Postilion or develop their own capabilities, which means they have continued using FSS\u2019s switch, without paying for it.<\/p>\n
Postbank has allegedly benefitted handsomely from the free ride.<\/p>\n
In a separate internal brief dated 2 September, Postbank\u2019s manager for legal services Nonhlanhla Mtshali explained:<\/p>\n
\u201cPostbank has been using the unlicensed FSS switch for over 29 months resulting in over 857 759 375 in SASSA card transactions being processed from August 2018 till December 2020 generating a significant amount of revenue to Postbank in the form of Automated Teller Machines (ATM) and Point of Sale (POS) terminals service charges.\u201d<\/p>\n
In other words Postbank was raking in the revenue while incurring none of the costs.<\/p>\n
The numbers are far from trivial. SAPO\u2019s latest available financial results show that the transaction fee revenue from distributing grants is slightly over R800-million per year.<\/p>\n
If the switch was paid for this would add over R90-million to the expenses related to grant distribution.<\/p>\n
\u2018We thought it was free\u2019<\/strong><\/p>\n The payment switch fiasco seemingly demonstrates a shocking level of internal confusion about the ceding of the SASSA contract to Postbank in 2020 with Postbank personnel not understanding that they were inheriting a dispute with a crucial service provider.<\/p>\n According to Kgauwe\u2019s board memorandum: \u201conce the contract was ceded to Postbank, the service provider continued to make demands for the payment of the switch. It appears that at the time Postbank personnel were under the impression that the switch came as part of the package with the IGPS \u2026 The demand for payment was a continuation from SAPO\u2026FSS had communicated then to SAPO that the switch services was going to be disrupted with effect from 31 December 2020 \u2026 Postbank initially pushed back on the demand proclaiming that the switch was part of the tender for the IGPS.\u201d<\/p>\n As it turned out Postbank was able to stall until February last year before FSS briefly made good on its threat to shut down the grant system and forced the state-owned company\u2019s hand.<\/p>\n The Heads of Agreement hurriedly put together after the brief shutdown laid out the basic deal that would have to be put to National Treasury for condonation since it would be a deviation from the existing FSS license agreement for the IGPS.<\/p>\n The terms were a R0,21 fee per transaction using the Postbank-issued cards by over 8-million SASSA grantees until the IGPS contract ends in March 2023. That amounts to roughly R7,5-million per month or R90-million per year, depending on grantees\u2019 level of activity. A 10% cancellation penalty would apply if Postbank managed to get its own system up and running before the contract runs its course.<\/p>\n While all of this was happening, FSS was in the process of ceding its license agreement with Postbank to its local partner, Electronic Connect (EC), a process that was concluded in June. Going forward FSS would provide services via EC.<\/p>\n Then things went pear-shaped again.<\/p>\n