New dawn can’t come soon enough for Net1

Net1 CEO Herman Kotze sounded reasonably upbeat on the teleconference with analysts last week following the release of what one analyst described as a “shocking” set of quarterly results. Presumably the more shocking the results, the more upbeat you have to sound.

Kotze referred to a “new dawn” for Net1 in SA since October 1, when the company was relieved of the Constitutional Court obligations to ensure the smooth payment of social grants to almost 11-million recipients monthly.

The subsequent crash in the share price towards record lows indicates investors were not persuaded by his talk of strong market growth after the era of the SA Social Security Agency contract. They may instead have focused on his warnings that the next few quarters could also be a bit tough.

It is difficult to imagine that things might not improve from the extremely tough situation facing Net1 during the six months to end-September. Its Cash Paymaster Services (CPS) subsidiary was forced to continue distributing cash grants to hundreds of thousands of ruralbased recipients. The pay points are located deep in rural territory and are extremely expensive to service as they require mobile ATMs and hours of driving across rough terrain. And there are the security costs to consider.

CPS says it costs it about R45 per rural recipient, much more than the R14.42 it was receiving in terms of the Constitutional Court ruling.

The R45 cost for rural recipients wasn’t a problem during the period of the contract because most of the recipients are urban-based and cost considerably less than R14.42.

Now Net1 has to persuade the court, contrary to the views of the court-appointed expert panel, that it deserves a hefty top-up payment for the six months’ work. The court will be aware the SA Post Office will use any sign of generosity to boost its own claims.

Discovery has held its cards close to its chest about what exactly its bank — which is scheduled to launch on Wednesday — will offer. Apart from saying that it will be a “fully fledged retail bank”, Discovery has kept the market wondering whether it will launch a comprehensive product suite that can compete with the big four or whether it will have a digital focus such as the other new kids on the block

— Bank Zero and TymeBank — plan to.

The only thing known about the bank at this stage is that Discovery will migrate the credit card business, a joint venture with FirstRand in which the bank issues Discovery-branded credit cards, to its own bank. But that too will happen over time and not prior to the bank’s launch.

While no one knows what to expect from Discovery Bank yet, what is clear is that Discovery is entering a competitive space.

It will have only a few months before it starts facing stiff competition from Bank Zero, TymeBank and Post Bank, which are expected to launch in 2019.

Competition from other quarters is also intensifying.

In the low-income market, Hollard started piloting a savings and transactional card a few months ago.

Old Mutual, whose Money Account product is priced similarly to Capitec, reported during its interim results in September that it had grown the number of active accounts 34% in the first half of 2018.