Just what is the ‘new Net1’?

Financial Mail | Rob Rose | 25 November 2021

Fintech firm Net1 is still trying to shake the image of a company fleecing social grant recipients. But winning back legitimacy isn’t that easy.

“Rehabilitation is a journey. There’s been a lot of hurt and a lot of mistrust,” says Lincoln Mali, the former Standard Bank executive now heading Net1’s SA division.

The hurt he describes stems from a dark period in SA’s recent business history, when Net1 unlawfully scored the contract to pay 17-million social grants every month between 2012 and 2018, and then fleeced the grant beneficiaries.

The problem wasn’t so much the Constitutional Court ruling in 2016 that Net1’s payment arm, Cash Paymaster Services, had unlawfully scored the welfare contract; rather, it was the way in which it insidiously flogged products such as loans and airtime to grant recipients.

For example, one of its products, Umoya Manje, allowed grant recipients to buy airtime on credit.

“This wasn’t thought through,” says Mali. “Rogue elements were able to come in and deduct money for airtime that wasn’t bought. So we closed it down.”

But it wasn’t just airtime. Net1 would sell everything from funeral policies to microloans (at interest of up to 32% a year) and deduct “repayments” before paying the grant every month.

It was risk-free money for jam.

As 66-year-old grant beneficiary Jakobus Fortuin told GroundUp in 2017: “They told me the deductions were for policies with 1Life and Emerald Life, and for electricity and airtime … they said one of my children signed me up; but I have never heard of the person with that name.”

In another case, a young mother who got a R350 child support grant ended up being paid just 26c after deductions.

In one month in 2016, 25.5% of grant beneficiaries said money was deducted from their grants without their consent.

Net1 was only able to do this, according to nonprofit Freedom Under Law, because it had “improper access to the data” of grant recipients.

Mali says the Net1 of today is different — unencumbered by the “God complex” that characterised the company during the tenure of former CEO Serge Belamant, who was booted out by shareholders in March 2017.

A young mother who got a R350 child support grant ended up being paid just 26c after deductions

“We’re reviewing all our products; we’ve got an entirely new team, and we’re conducting ourselves differently,” Mali says.

At the head of that new team is Chris Meyer, an investment banker who left Investec after 20 years.

Meyer tells the FM that Net1 is going through a big cultural shift, from a company that “moved money from point A to point B to pay a grant” to one with far grander ambitions: a fintech company aimed at providing digital platforms for people on the lower levels of the income pyramid.

“Our thesis is that there isn’t a single financial technology platform in SA, across both consumer and merchant [sectors], providing financial services to that lower [income level],” he says.

In particular, the “new Net1” is focusing on the informal sector — the 1.4-million merchants, including spaza shops, serving people largely ignored by the banks.

But winning back legitimacy in this market, with all that baggage, isn’t easy.

For one thing, Net1’s contract with the SA Social Security Agency to pay grants has ended, but it still is responsible for paying out 1.1-million grants every month.

“It’s a legacy thing,” says Net1 director Antony Ball. “We bank these grant recipients and still offer them services. But there’s no contract in place. These grant recipients can nominate any bank.”

This means its loan arm, Moneyline, continues to lend to grant beneficiaries.

Here, however, Net1 differs from critics who believe it shouldn’t lend to grant recipients, given the horror stories of how people ended up borrowing more than they could afford.

Says Mali: “If we follow the law, and we do the right thing, we can lend to … grant recipients. I am where I am today, because my mom didn’t have access to bank financing — she borrowed to put me through school and university.”

But, he says, credit must be transparent and properly vetted. “We want to be a force for good in society, so we won’t do anything that is unethical or wrong,” he says.

However, as nonprofit Open Secrets argues in a new report on companies that exploit the grant machinery, Net1 is kidding itself if it excuses its past shoddy behaviour by arguing it was simply promoting “financial inclusion”.

“Poor people of course need credit, but the way it is given — attached to social welfare benefits — … can lead to unsustainable indebtedness for people who have to turn to additional sources of credit to get through the month,” the report says.

If the “new Net1” wants to avoid the anger it provoked in the past, it’ll need to pay far greater attention to what is ethical lending rather than simply to what is legal.FM

Check out the article here: https://www.businesslive.co.za/fm/features/cover-story/2021-11-25-just-what-is-the-new-net1/