Net 1 shrugs off social grants hangover: Next step crypto
CEO cheers as payments company’s fraught contract with the SA Social Security Agency is finally over
Net 1’s role in the SA Social Security Agency’s fraught social grants payments tenders has done the company no favours with local investors. But year-end and fourth-quarter results released by the payments company are hardly catastrophic given the loss of the agency’s contract: flat revenue of $613m and a 15% drop in adjusted earnings to $127.2m.
We asked Net 1 CEO Herman Kotzé how it has made up the shortfall.
We’ve been preparing for the end of this specific contract for quite some time. The Q4 results were generated with very little contribution from Sassa so it’s probably a fair indication of the business going forward and as you can see it’s certainly not a catastrophic component to lose. We will continue and we will thrive, in my view.What has been catastrophic, however, is your reputational damage. How are you going to restore Net1’s standing?
I think we were unfairly tainted and targeted. People have never really understood what the real reasons were given by the Constitutional Court for the declaration of invalidity of the contract. They were all to do with procedural irregularities on Sassa’s side during the tender evaluation process. They had nothing to do with any conduct from Net 1 or Cash Paymaster Services (CPS), or allegations of corruption, but that message I think was not fairly disseminated by the media.
That obviously resulted in a fairly lengthy and high profile and invasive investigation not only by the Hawks but by the Department of Justice and the Securities and Exchange Commission in the US. Those investigations took five years to complete and in the end all of them resulted in no findings of any wrongdoing on the side of Net1.
We’ve obviously had some very high profile battles with Sassa, there’s been a lot said about the provision of financial services to social grant recipients and the question mark will always be around the morality of providing loans to grant recipients – and I think that’s a fundamental point of difference between us and Sassa and some of the NGO’s.
Net1 is all about the provision of financial inclusion and by any definition, one of the key components is the provision of credit. But that has also been portrayed in completely the wrong light and again what the public doesn’t understand is that the provision of financial services was something we had written into our initial tender response.The path for us now is to exit the relationship with Sassa, that will give us breathing space out of the legal and public spotlight to focus on the promotion of the many other businesses we have in SA. Net1 has more than 40 subsidiaries locally and internationally. We have to focus on regaining the confidence of the public and our investors at large.
DebtSafe recently published its first “Reckless Lending Indicator” in which it found that of 5,591 agreements under debt review, 40% appeared to be reckless. It’s a condemnation of the entire industry. So how can you run a moral and profitable business in financial services?
It’s entirely possible. It does require great discipline and the enforcement of some very strict rules. We have a very strict set of affordability criteria that we’ve automated. We’ve removed almost any human intervention in the decision to grant credit or not and that has resulted in our rejection rates, by the way, being more than 60% of applications. In my view there is simply no other way to assist (people on social grants) to change their lives other than through the provision of cheap and affordable credit.
What’s a typical size loan? And how do you grant loans?
It’s all done in person. You have to go to a branch to ensure we get complete documentation in terms of the National Credit Regulator. The process of application is driven by technology so the loan officer isn’t able to skip any questions, isn’t able to amend any answers. In our case the average loan size is about R1,000 and the average period is about six months.
Alongside Blue Label Telecoms, Net1 bought 15% of mobile operator Cell C, for R2bn. Cell C’s debt is a worry, operationally it’s tough – why did you do the deal?It was done for a very specific reason and that was to help us to put together a basket of the most affordable and cheapest financial services and communication products to our customer base.
You talk about opportunities for Net1 now that the CPS Sassa contract is out of the picture, what are they?
In SA specifically the opportunity is to focus on the rollout of our EasyPay Everywhere (EPE) card base together with the offerings from Cell C and DNI. We also have EasyPay itself which is the largest bill payments business in SA.
Internationally we have embarked on major R&D projects in the blockchain and the crypto side of the industry. Net1 has a very long history in cryptography, biometric verification and security modules so we will be using those to offer a solution to the storage of cryptocurrencies in the global market. We also have a fairly busy year planned for our activities in Europe with the certification of our new multi-currency card-issuing and acquiring platforms, and in India we plan to expand our activities with new products which include cross-border payments.