1. South Africa Post Office
Presentation to SCOPA on the state of readiness to pay social grants
31 October 2017

2. Contents Introduction SAPO as Solution Aggregator Banking Services
SAPO/Postbank Capabilities
Components of the SAPO value chain
Budget
Conclusion
SAPO Presentation to SCOPA – 31 OCTOBER 2017

3. High level Overview of the Journey ‘to date’
Introduction
High level Overview of the Journey ‘to date’
: SASSA Issue RFI (36/16/ICT/RFI) for ‘Social Grant Payment and Banking Services’
: SAPO submit response to RFI
: Exploratory meeting between SAPO and SASSA CEO’s on SAPO’s capabilities
: SAPO CEO confirm SAPO’s commitment to a partnership and collaboration with SASSA in developing and delivering a Grants Payments Solution
: SAPO brief SCOPA on SAPO’s readiness to do SASSA Payments
April – June 2017: Various meetings between SAPO and SASSA on solutions and capabilities
: Workshop with SASSA EXCO in Cape Town on SAPO capabilities
: SAPO receives letter of intention to appoint SAPO as Service Aggregator to pay social grants on BOT
: SASSA Letter of appointment accompanied by letter of approval by National Treasury (NT) to deviate form normal procurement process and appoint SAPO as an organ of state on collaboration, noting that during recent engagements, SASSA was convinced that SAPO has the ability and capacity to take over from CPS
: SAPO CEO accepted the appointment of SAPO as Solution Integrator/Service Aggregator to pay social grants on a BOT model over a period not exceeding 5 years.
SAPO Presentation to SCOPA – 31 December 2017

4. High level Overview of the Journey ‘to date’
Introduction
High level Overview of the Journey ‘to date’
: National Treasury official confirmed to SCOPA that:
Collaboration between government entities are possible without a procurement process as per the Demand Management Guidelines
Doing due diligence (DD) on a government entity, things are different from when you do DD on a private company; and
Mr Chauke confirmed that ‘it seemed feasible that entity-to-entity was going to work.
: SASSA Issue RFP:01/17/SP to SAPO for ‘Social Grant Payment and Banking Services’
: Letter by SAPO CEO to the Acting CEO of SASSA, Ms Bengu re-affirming SAPO's acceptance of appointment as a Solution Integrator/Service Aggregator to pay social grants on a Build, Operate and Transfer (BOT) model over a period not exceeding 5 years as per the letter from Mr Magwaza, dated 14 July 2017, noting that:
SAPO will respond to the RFP and will comply with the requirements of the RFP
Responding to the RFP does not diminish SAPO’s legal standing with respect to the letter of appointment of 14 July 2017
: SAPO submitted response to the RFP
: SAPO presented clarified its proposals to SASSA BEC
: SAPO presented its proposal to CSIR. Despite numerous requests, SAPO has not been provided a copy of the CSIR report or given an opportunity address any issues raised in the report
: SAPO receives ‘Letter or Award’ for one component of the RFP only
: SAPO CEO disputes the basis of the award but accepts it in principle and on the specific condition that SAPO also be awarded the Card Production & Distribution and Banking Services
SAPO Presentation to SCOPA – 31 December 2017

5. SAPO as Solution Aggregator
SAPO has the ability to fulfil the role of Aggregator
SASSA and SAPO will share knowledge and capabilities as Government entities to avoid duplication of investment.
Streamlining of processes to the benefit of both SASSA and SAPO.
The entire value chain will be centrally monitored and managed jointly by SAPO and SASSA while it will be easy to transfer skills and functionality back to SASSA.
Service contracts could move directly from the solution aggregator to SASSA as per agreed timeframe in the Phase out schedule.
Assemble, manage and seamlessly integrate multiple providers into a single customer solution.
SAPO’s proposed solution is affordable, value for money at a competitive price and will leverage on existing systems.
SAPO and SASSA will leverage on shared contracts and benefit on economies of scale in negotiating value from service providers.
SAPO Presentation to SCOPA – 31 December 2017

6. Postbank’s capabilities
Banking Services
Postbank’s capabilities
Postbank is an autonomous division of SAPO and Postbank and SAPO financial transactions are strictly segregated
Designated participant in the National Payments System, performing own interbank transaction clearing, providing all grant recipients full inter-operable access to all ATMs, retailers and POS purchases
A banking license is not a requirement to pay social grants – Postbank already has the necessary regulatory approvals and capabilities to effect grant disbursements
Full member of the Payments Association of South Africa (PASA) and the South African Banking Risk Information Centre (SABRIC)
Full member of VISA and MasterCard, with card issuing and card acquiring licenses from both card associations
Application for registration as a bank submitted to SARB on 26th of June 2017
Currently Postbank has 5.7 million customer accounts, deposits of R5 billion and R8 billion invested in treasury or money market investments
SAPO Presentation to SCOPA – 31 December 2017

7. SAPO/Postbank Capabilities
Dispelling misconceptions about SAPO/Postbank capabilities
SAPO is indeed capable of issuing interoperable cards and are doing so already
SAPO is able to prevent debit orders against the SASSA debit card accounts
SAPO is able to settle banking transactions via Standard Bank until Postbank is awarded the Banking license. The fact that Postbank does not settle directly in the SAMOS system does not diminish it’s capability or legality to do so
By virtue of the fact that SAPO is already a full participant in the NPS and all post office counters are considered to be ‘ATM’s’ where beneficiaries can withdrawn funds at will, SAPO does not need to register as a merchant for the payment of SASSA grants
SAPO only proposed a more staggered payment schedule for logistical reasons but it was never intended as an absolute condition. SAPO will abide by SASSA’s payment schedules
SAPO did provide details of its sub-contractors during the SASSA BEC due diligence meeting and during the CSIR due diligence work and is fully prepared to be totally transparent in its use of service providers
SAPO can produce and deliver the first batch of 2 million cards 8 weeks after the card design has been approved and thereafter 2 million cards every 3 weeks. SAPO therefore does have the capacity to produce and deliver the required quantity of cards to replace the current Grindrod cards within the stipulated time frames as per the RFP (5 Months)
SAPO Presentation to SCOPA – 31 December 2017

8. SAPO/Postbank Capabilities
Dispelling misconceptions about SAPO/Postbank capabilities
Concerning Cash Payments at Pay-points, SAPO does have the ability to reduce the overall number of existing SASSA cash pay-points and associated costs by leveraging off SAPO’s vast branch network (SAPO has over 2300 branches that are fully operational), specifically in Rural Areas. Using SAPO’s branches will also reduce costs for beneficiaries and provide them with greater convenience and flexibility
SAPO also intends to deploy its own ATM’s and POS footprint in predominantly rural areas to expand the availability of electronic payment solutions to SMME’s to reduce the dependency on Cash and in order to support financial inclusion
SAPO never approached the SARB to take over the Grindrod cards. Such a possibility was only raised in discussions as a risk mitigating possibility
The provision of Banking Services is a core competence of Postbank and there is no reason why this was not awarded to SAPO/Postbank. Postbank manages 5.8 million customer accounts, has R8 billion in Investments and R5 billion in deposits. Postbank customers use Postbank cards daily to transact at ATMs, at merchants and at SAPO branches
SAPO Presentation to SCOPA – 31 December 2017

9. Components of the SAPO Value Chain
The current SAPO & Postbank systems will meet all SASSA requirements
Capability
RFP Section
SAPO RFP Response
Description of Capability 1
Account Management
4.3
Banking system to host SASSA Holding account and special disbursement accounts and also to enforce the SASSA payment rules 2
Card Production and Personalization
4.4,
4.4
System to issue EMV cards and personalise the cards with SASSA beneficiary data 3
Enrolment of Beneficiary
3.2.2,
4.2.5, 4.1
4.1
Issue Postbank EMV cards to existing and new SASSA beneficiaries (Conversion of SASSA grants beneficiaries to SAPO payment platforms) 4
Biometric Proof of Life (Rollout Biometric Management System)
4.2.5,
4.6
System to enable beneficiaries to demonstrate Proof of Life and to integrated into the Postbank’s core banking platform. 5
Integration and upgrade of capacity in systems
4.2.14,
3.2.1
4.2
Integration of SAPO and SASSA (Applications, Systems and Infrastructure) to enable data movement and information exchange between the two entities. 6
Trust Center and DHA (HANIS) Integration
3.2.2
3.2.2, 4.6
Integration to the Department of Home Affairs (DHA) Database for verification of all beneficiaries and de-duplication of biometric data. 7
Financial Switch Upgrade
3.2.3
Switching of all financial transactions to paypoints and cash distribution channels 8
Security and Fraud Prevention
4.2.1,
4.2.2
4.7.3
System and infrastructure to secure the entire value chain from fraud, cybercrime and duplication 9
Cash disbursement and Pay Point Management (Urban and Rural)
3.2.5,
4.8,
4.7.1
Management of cash paypoints and cash in transit to all the paypoints and branch networks
SAPO Presentation to SCOPA – 31 December 2017

10. Components of the SAPO Value Chain
The current SAPO & Postbank systems will meet all SASSA requirements
Capability
RFP Section
SAPO RFP Response
Description of Capability 10
Digital Platform (USSD and SMS) Banking 
4.5.1, 4.2.8,
4.5.20
4.2.8,
4.5.11
Digital platform to allow beneficiaries to get notifications and to perform banking enquiries 11
SAPO Networks
4.2.15
4.8.3
Connect all SAPO/SASSA branches and mobile cash Paypoints 12
Dignity Plan
4.8
Logistics to cater for beneficiaries during pay days and special SASSA organised events 13
Communication Plan
4.9
Strategy to communicate with SASSA grants beneficiaries both in rural and urban areas 14
Disaster Recovery and Dual Connectivity
4.2.13
High availability and failover capacity for the Grants Payment Systems
SAPO Presentation to SCOPA – 31 December 2017

11. SAPO financial ability
Budget
SAPO financial ability
SAPO and Postbank have adequate funding to support the rollout of capabilities for social grants:
ATMs, mini ATMs, card acceptance devices etc.:
Partners have adequate capital to fund equipment acquisitions
SAPO will source this on an operational lease basis, if economics are acceptable
Cash-in-transit and security costs funded from revenue
Branch capacitation
Additional staffing costs will be covered by the contract
Hardware is currently being refreshed. New hardware will be covered by contract revenue.
Core banking system capacity and card replacement
Postbank has R2.9 billion in equity, whereas the Banks Act requires R1.2 billion. Excess capital can be used to fund the following, with the recovery of other agreed upon costs from SASSA over time:
This can be utilised to expand core banking licenses and hardware at an estimated total once-off cost of R90 million and another R79 million
Replace 12 million cards at an estimated once-off cost of app R425 million (recoverable through the service fee)
Call centre capacitation which will cost an extra R6 million p.a.
Network upgrade which is currently running, will cost an additional R50 million p.a.
SAPO Presentation to SCOPA – 31 December 2017

12. Summary of SAPO’s position
Conclusion
Summary of SAPO’s position
Noting the ‘Letter Agreement’ between SAPO and SASSA entered into on 31 July 2009 for the Provisioning of Banking Services for the SASSA Client Base, the legality of which was upheld by the Supreme Court of Appeal
SAPO considers the letter issued by the CEO of SASSA dated 14 July 2017, confirming the intention to appoint SAPO as a Solution Integrator/Service Aggregator to pay social grants on a Build, Operate and Transfer (BOT) model over a period not exceeding 5 years, and duly accepted by SAPO on as legally binding
In the spirit of collaboration, SAPO is prepared to accept the appointment to deliver the Integrated Grant Payment System Services that entails a) SASSA payment platform development, b) Beneficiary Biometric enrolment and c) Biometric proof of life, if and only if SAPO is also awarded the Card Body Production & Distribution and Banking Services as well
If SAPO is awarded the contract as outlined above, SAPO would not dispute the award of the Cash Payment Services to a different service provider provided that such payments are processed through the Banking Service to ensure inter-operability and freedom of choice and convenience to the beneficiaries
To mitigate the very real risk of failure to develop, test and deploy the various systems within the very limited remaining time frame, SAPO, if awarded an irrevocable 5-year contract to provide the services outlined above would not oppose a 3 month extension of the CPS contract to avoid inconvenience and unnecessary stress to beneficiaries
SAPO Presentation to SCOPA – 31 December 2017

13. Thank You
SAPO Presentation to SCOPA – 31 December 2017

14. References
Annexures
A: Comprehensive list of engagements with SASSA and others
B: Summary and salient points relating to SAPO/SASSA engagements
C: Comprehensive presentation on SAPO’s readiness to pay social grants
D: Legal Framework
SAPO Presentation to SCOPA – 31 December 2017

15. Annexure D: Legal framework
The Inter-Governmental Framework provides better protection to Grant Payment Services
Constitution of the Republic of South Africa, 1996 (CRSA)
Section 239: SASSA and SAPO are both organs of state.
Intergovernmental Relations Framework Act, 13 of 2005 (IGRFA)
Section 4: “to provide within the principle of co-operative government set out in Chapter 3 of the CRSA…”
Section 5: National government must seek to achieve the object of the Act by taking into account the circumstances, material interests and budgets of other government departments and organs of state.
2009: SASSA and SAPO concluded a “2009 Letter Agreement” in terms of IGRFA.
2011: the Supreme Court of Appeal confirmed that the “2009 Letter Agreement” was properly concluded in terms of the IGFRA and therefore binding. Court held that SASSA is not obliged to comply with its supply chain policy under Regulation 16A6.4 and permits SASSA to deviate from a competitive process subject to conditions.
Note: In terms of the transfer to SASSA at the end of the contract, Section 197 of the LRA allows for people to follow functions were those functions migrate as a going concern. This is also supported by the DPSA guidelines which allows two organs of state to transfer people depending on their functions.
SAPO Presentation to SCOPA – 31 December 2017

16. Annexure D: Legal framework
How SAPO will assist SASSA to meet Constitutional Court risks
Constitutional Court: Black Sash Case (CCT 48/17)
March 2017: Judgement was delivered in this case where SAPO applied to join as an Amicus (“friend of the Court”) and contended that it has the capabilities to provide grant distribution services to beneficiaries.
Honourable Court held that:
Paragraph 3: SAPO’s application to join as Amicus was admitted by the Court and successful.
Paragraph 39: SAPO’s perspective was important and a fresh, empowering perspective… and that with sufficient will and energy, the State itself could creditably and competently manage the grants distribution process. Therefore SAPO is worth admitting as Amicus.
2017 Letter Mandate
14 July 2017: SAPO received a letter of appointment from SASSA.
28 July 2017: SAPO responded by stating that it acknowledged and accepted:
Its appointment as a Solutions Integrator/Service Aggregator to pay social grants on a Build, Operate, Transfer basis over a period not exceeding 5 years;
That the collaboration is between SASSA and SAPO only and is a transitional arrangement in accordance with Section 238 (b) of the CRSA as well as Section 35 (1) of IGFRA, which provides for the performance of any function on a delegated or agency basis for any state organ;
The contents of the supporting letter dated 04 July 2017 from National Treasury to SASSA, confirming that SASSA has obtained a written letter of deviation and support to enter into an agreement with SAPO on a Government to Government collaboration basis for a period of 5 years;
That its appointment by SASSA does not mean that SAPO is taking over the payment function permanently, as the administration, management and payment of social assistance is the responsibility of SASSA in terms of the SASSA Act, 2004.
SAPO Presentation to SCOPA – 31 December 2017