Fintech group Lesaka Technologies is increasingly onboarding social grant beneficiaries, as the South African Post Office (SAPO), which has a government contract to distribute millions of social grants, faces liquidation.
This was revealed by Lincoln Mali, CEO of Lesaka Southern Africa, in an interview with ITWeb last week, after the company announced its financial results for the year ended 30 June.
Lesaka posted revenue of R10.6 billion, up 11%, with Mali pointing out that the social grant business is the fastest growing within the group, with 361% year-on-year growth, and it now has 1.5 million active accounts.
According to National Treasury, social grants benefit over 28 million people in South Africa and it projects to allocate R266.21 billion to social grants in the 2024/25 fiscal year, representing 3.6% of the GDP.
Formerly known as Net1 UEPS Technologies, Lesaka is listed on the Johannesburg Stock Exchange and Nasdaq.
Amid controversy, the South African Social Security Agency’s (SASSA’s) business ties with Net1 subsidiary Cash Paymaster Services (CPS) came to a close when the extended contract expired in 2018.
SASSA had, since 2012, relied on the services of CPS to pay millions of beneficiaries through cash payments, direct deposits and electronic payments.
When the CPS contract was terminated, the post office took over the payment of social grants, together with banks, including Lesaka.
Parliament has said that since the termination of the contract, the number of grant recipients queuing for cash at pay points in villages and townships has decreased, as more people use banks and the post office to get their money.
However, SAPO is in dire financial straits and its once wide branch network has significantly shrunk over the years. The ailing state entity has been under business rescue for over a year, led by joint business rescue practitioners Anoosh Rooplal and Juanito Damons.
Earlier this month, SAPO officials briefed Parliament’s Portfolio Committee on Communications and Digital Technologies on behalf of the business rescue practitioners, warning of a “day zero” scenario, with SAPO expected to exhaust all its cash reserves by October.
Despite receiving the full R2.4 billon funding allocation from National Treasury in 2023, it was revealed that SAPO requires a further R3.8 billion, in order to fully implement the approved business rescue plan.
Addressing anomalies
According to Mali, turning around the social grant business since he was appointed Lesaka CEO for Southern Africa three years ago is one of the things he is most pleased about.
“When I joined the company, people were saying ‘why are you coming to this?’ This is because Net1 UPS had lost the social grant contract with the government. I then said: ‘actually, I don’t think there should be a contract’.”
Mali notes that his fundamental belief is that all South Africans must participate in the payment system.
He adds that the fintech firm is also able to sell lending and insurance products to its 1.5 million active customers, and now has a network of 300 branches across SA.
“We have moved from a cash-dispensing business or a cash logistics business, to a pure sales and service business, where we win and retain every customer. We had to change our entire distribution model.”
Lesaka also had to change technology, so that beneficiaries can within five minutes open an account using a tablet and be provided with a bank card, that can work at any ATM or point-of-sale device.
“A customer who is a grant recipient previously had to take a taxi or two to come and borrow R2 000. But through USSD, they can make that application from the comfort of their home and they can be given that money in five minutes.
“We can now say this business, from being a cash dispensing business, can open 20 000 new accounts every month. It can open 15 000 insurance products every month; it can do 90 000 loans every month; and in a year, it can lend out R1.7 billion to social grant beneficiaries. It can pay out about R110 million to funeral insurance when people have lost their loved ones and 90% of those are paid within 24 hours.
“We currently have about 11% of that market, the biggest being Capitec, but obviously the post office still has the bulk but customers are moving every day.
“There is still a long road to go and I believe that many people will eventually leave the post office. You saw the feedback in Parliament where they were saying the post office will probably be liquidated? So, when that happens, customers will move to different banks.”
Explaining how the process works, Mali says: “If we are in your community and you are away from our branch, we bring a tablet which we use to open the accounts. We use it to take fingerprints and digitally onboard the client and make sure we have their biometrics.
“We then give the customer our card, which is called an EPE [EasyPay Everywhere] card. You are able to use that card anywhere in the country and at any retailer. You are also able to get cash at any point-of-sale in the country.”
When a beneficiary gets the card, he explains, they have to approach SASSA in order to change their banking details, which means the money they get will no longer be coming from the SASSA card or from the post office.
“You will now be getting the money from us, or any bank that you have opened an account with. We go to the post office or near post offices and we’ve got our gazebos there where we tell the people about the choices they have. You can get the grant from any bank, including us. So, if someone is happy with the post office, they will stay with the post office, but if they want to move to other banks, we are one of those banks which are alternatives.
“When you activate our card is when you have gone to SASSA and switched your grant to us. That’s what we count as an active customer. When we say we’ve got 1.5 million active customers, those are customers where a grant is deposited and transactions are being initiated from that card every month.”
The grants business has been the biggest turnaround in the Lesaka business, he adds. “Our EBIDTA has grown by about 361% year-on-year for that business. That business is now generating an EBIDTA of about R274 million. In that area, there is also some interesting statistics; for example, in the lending space, our loan loss ratio is below 6% and 80% of our customers are repeat borrowers.
“In the insurance business, the collection rate of our premiums is sitting at 96%, while the industry average is 60%. So that business has done extremely well from a loss-making, cash-burning business to a profit-making business that is contributing positively to cash-generation in the business.”
Lack of commercial drive
Describing some of the challenges faced by the post office, he says most state-owned enterprises are not run on commercial terms. These institutions also tend to always forget about the customer, he comments. “If you are not serving the customer, the customer will always go next door.”
Another issue is the post office didn’t invest in technology. “Their technology is antiquated.
“When I think of the fact that when the CEO of Post Bank started, we were both running businesses that were not profitable, businesses that were in trouble.
“Now, three years on, that business [Post Bank] is worse off and it’s on the verge of liquidation. On the other hand, our grants business is the biggest contributor in terms of growth to our business.
“Hiring the right leaders, looking after your customers, investing in technology and having shareholders that will hold you accountable are all important,” Mali concludes.
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