Retailers bemoan cost of grant payouts
Retailers want withdrawal fees to be scrapped, writes ZEENAT MOORAD
RETAILERS want banks to share the pain of the congestion, costs and risk of crime associated with grant payouts, writes Zeenat Moorad.
A large number of the 16.7-million beneficiaries collect their grants from retail outlets every month, but the retailers say the service is proving too costly.
Shoprite, Pick n Pay and the Spar Group receive a small fee for processing South African Social Security Agency (Sassa) payouts as part of an agreement signed with Net1, the winner of the grants-distribution tender.
But the fees do not cover the cashmanagement or operational costs of processing payments.
Mike Prentice, group merchandise executive at Spar Group, said: “Everyone involved in paying out pensions makes money, but at a retailer, you can withdraw for no fee whatsoever. (This) costs us.”
Net1 subsidiary Cash Paymaster Systems holds the R10bn-plus Sassa contract to administer payments.
The retailers do not charge grant recipients for withdrawals and make losses on each payout, they say.
In its last financial year, Shoprite spent R1bn on security, which outstripped its transport bill. Armed robberies at the retailer’s stores have spiked on grant payout days.
Other customers snub the stores on grant payout days.
The grants start at the Treasury, which makes monthly deposits into a Nedbank trust account.
Cash Paymaster Systems then pays the money to beneficiary accounts held with Grindrod Bank; thereafter recipients are able to collect their cash at retail payouts or withdraw it from ATMs.
ASTORM is brewing between major retailers and banks over SA’s social grant system, with retailers that provide free social grant payout points at the tills pushing banks to cut their ATM charges for grant payouts.
SA’s retailers in 2012 signed an agreement with JSE- and Nasdaq-listed Net1 to become official distributors of social grants. Net1 subsidiary Cash Paymaster Services still holds the multibillion-rand contract to administer grant payments to more than 16-million South Africans, even though the Constitutional Court ruled that the contract was awarded improperly. But, the free service has seen long queues at the tills at month-end and has created a hotbed for criminal activity at Shoprite, Spar and Pick n Pay. They want banks, which are charging social grant recipients as much as R18 to retrieve their grant money at ATMs to waive the fees.
Grant beneficiaries previously collected their money from South African Social Security Agency (Sassa) pay points (largely in rural areas) or a network of retailers. The retailers also installed machines in stores so fingerprint biometrics could ensure that only the correct recipients could draw grants.
Retailers received 10c per withdrawal and teamed up with Net1 largely to attract extra customers. While the move eased pressure at Sassa pay points, the Sassa card cannot be used at bank ATMs.
Retailers say it is “only just” that the cards should work at bank ATMs, given that they are burdened with the cost of cash management, additional security and have to swallow transactional and interbank charges on grant payouts.
“We provide it as a service; it pulls additional feet in (to stores), but it comes at a cost. (There is) no financial benefit to it and it is an area of concern that banks charge for withdrawals. Everyone involved in paying out pensions makes money, but at a retailer, you can withdraw for no fee whatsoever, but it actually costs us money,” says Mike Prentice, group merchandise executive at Spar Group.
NET1
CEO and chairman Serge Belamant says merchant stores such as Pick n Pay and Checkers provide a standard cashwithdrawal function for beneficiaries.
“Large stores want the financial spend of beneficiaries, but not the queues or the associated risk … The rules governing transactions at point-of-sale cannot discriminate between clients.”
Retailers are caught by the banking rules and the Visa and MasterCard brand regimes, he says.
“Net1 has no issue with the waiving of ATM fees for beneficiaries. Why banks would allow this, however, is another story. They would dispense cash at their cost and lose the transaction fees at merchant stores.”
Net1’s tender was ruled invalid by the Constitutional Court in April last year. The court ordered Sassa to reopen the bidding after it found the tender process was flawed.
Sassa dismissed three new bids for the contract last month for not making the cut, leading to Net1 retaining the tender.
Shoprite’s security costs exceeded its transport costs, at R1bn for its last financial year. Armed robberies, particularly on payout days, have surged. From February last year to August this year, there has been more than 230 armed robberies at its stores.
Pick n Pay chairman Gareth Ackerman says banks should join retailers in waiving the ATM fee for Sassa withdrawals and rely on a government fee, as retailers do.
Before 2012, beneficiaries were paid outside the banking system, operating outside the rules and regulations imposed by the Reserve Bank and the Payments Association of SA (Pasa).
Net1 set it up as a “closed loop payment” that “did not go through the national payment system”, says a retailer who asked not to be named.
AT
THAT time, grant recipients drew money at a retailer, the transaction was processed directly back to Net1, which settled the transaction with the Treasury, avoiding bank fees. The transactions were cheap for those who processed them — none of the retailers paid bank fees, and they were paid 10c per transaction.
“Because it didn’t go through the national payment system, the banks said the whole process was compromised — but what they were really upset about was that they were losing out by not being able to be part of the payouts,” the anonymous retailer said.
“So through the Reserve Bank and Pasa, they forced the transaction to be an openloop payment. And suddenly, it became expensive for retailers, because we have to incur the merchant fees and now lose massive amounts of money with these transactions each month.
“The Reserve Bank, through Pasa, governs the fee structure for the national payout system and so, they determine the rules, but obviously, they are all in cahoots” the retailer added.
The Reserve Bank’s Hlengani Mathebula, head of group strategy and communication, said the bank did not comment on individual entities. However, it is believed that the Reserve Bank met with at least two retailers late last month to discuss the matter.
Banks appear to be unwilling to forgo bank charges for grant recipients. Capitec says it does not intend to discriminate or favour any income group, while First National Bank (FNB) says it did not lobby to be included in the grant-payment chain, but supported the strategies and objectives of the Reserve Bank, and particularly its National Payments System Department.
“FNB’s wide ATM footprint allows grant holders to withdraw; however, cash results in substantial direct costs — security, transport, insurance — and are recovered to ensure sustainability,” FNB said.
Absa said interchange fees applied across the banking industry.
It comes at a cost. (There is) no financial benefit to it and it is an area of concern that banks charge for withdrawals. Everyone involved in paying out pensions makes money