The collapse of the South African Post Office (SAPO) has led to competition between private companies interested in facilitating the payment of social grants, including Shoprite and Tyme Bank.
The SAPO entered provisional liquidation last month, opening the door for private companies to offer their services in facilitating grant payments.
This is part of an increasing trend in the government’s inability to provide basic services and requiring the private sector to intervene.
“Whether the government likes it or not, the private sector is privatising government by stealth,” Denker Capital executive director Kokkie Kooyman said.
Kooyman suggested that the government shop around to find the best offer from private companies for grant payments.
This would not only raise government revenue but also give it a say in who takes over as the payments facilitator rather than the sale being forced during a liquidation process.
Social grants include state pension payments, disability grants, and the relatively new Social Relief of Distress (SRD) grant.
Why private companies are interested
The failure of the SAPO has opened a gap in the market for companies that want to service South Africa’s 18 million social grant recipients.
Many companies, including Shoprite and Tyme Bank, have declared their interest in facilitating the payments.
Whoever facilitates the grant payments will be able to receive billions of rands in inflows through deposits, savings, or transactional accounts.
If each recipient received R1,000 a month, inflows would total R18 billion monthly for the payment facilitator.
Shoprite has declared its interest in facilitating social grant payments, offering a free switch to its Money Market Account for grant recipients.
According to Kooyman, the retailer’s main benefit would be attracting grant recipients to their stores to receive the payment.
This would result in increased spending in Shoprite stores and through its Money Market Account, whether to pay for electricity, airtime, or Shoprite products.
However, the retailer is limited by its inability to cross-sell other financial products such as credit, loans, insurance, or investments.
Other companies, such as Tyme Bank, can offer a diverse range of financial products to grant recipients.
For instance, Tyme Bank has already launched a product allowing grant recipients to receive an advance on their payment.
An additional benefit for companies would be access to spending data for South Africa’s 18 million grant recipients.
This would allow these companies, particularly banks, to create products better suited to a large client base.