An intriguing struggle is developing between the department of home affairs, headed by the DA’s Leon Schreiber, and Capitec in the one corner, and business tycoon Patrice Motsepe’s TymeBank in the other.
Schreiber says that for more than a decade, banks and financial service providers have paid only 15c for real-time verifications against the national population register (NPR). He says this is below market-related rates charged by the private sector for comparable services and far below the cost to the state of providing the online verification service.
He says the low fee has deprived home affairs of the resources required to maintain the NPR.
Schreiber got under the skin of the TymeBank management team by arguing that extreme underpricing had led to profiteering and abuses by some users.
The tsunami of digital verifications as clients open TymeBank accounts has overwhelmed the NPR and caused failure rates in excess of 50%, contributing to “system offline” failures at home affairs offices and even threatening national security.
After substantial upgrades to the service, home affairs gazetted a new price structure that sets a cost-reflective price for real-time verifications during peak hours at R10, while introducing an off-peak, low-cost alternative for batch transactions costing R1 per inquiry.
“Users must rise above narrow profiteering and put South Africa’s national security interests first,” says Schreiber.
Capitec, which dominates the mass market banking sector, agrees. Asha Patel, head of brand and communications, says there is a cost to absorbing the increase, but the cost of potential fraud and service interruptions would be far higher. She adds that this is a long-term investment in stability.
TymeBank should have deep pockets now that Nubank, dubbed Brazil’s Capitec, has taken a 20% stake, not to mention its other wealthy shareholders such as Motsepe and (indirectly) Sanlam. But TymeBank chair Coen Jonker argues that it is a relatively new digital bank which is trying to do what incumbent banks have struggled to do. As he puts it, this includes providing a free bank account, the lowest fees in the market and paying the highest levels of interest on savings, regardless of the client’s financial status.
“At the heart of it, the economics of serving a segment of customers shouldn’t be compared to commercial success. As we’ve seen in the recent past, valuation doesn’t always equate to profitability,” says Jonker.
TymeBank South Africa CEO Karl Westvig says it’s worth understanding that home affairs has been built and funded through taxpayer funding and the fee charged to access an ID database has been just that, a nominal fee.
“We estimate that we could run the service for the market at closer to 25c per database lookup,” he says. “The proposed fee of R10, we believe, is excessive and doesn’t have any commercial justification related to the service provided. We are supportive of system upgrades and would be prepared to pay a higher fee, but we cannot understand how the minister has arrived at this.”
Schreiber argues that the new service is already making a huge improvement to government and private users alike. “It is totally unreasonable to expect to keep paying 15c for a service that has improved from being down 50% of the time to now delivering results within milliseconds, and down less than 1% of the time.”
Cosatu, in its statement on the issue, talks of the decades-long de facto subsidy for financial institutions, which “has created a perverse crisis where, due to the absurdly low fee charged by the department, many have simply overloaded the system with requests”.
The labour federation argues that as a result, the system was continuously overwhelmed by the volume of repeat requests for information and frequently crashed. “This has compounded an already overstretched home affairs, battling to cope with long queues and the system being repeatedly offline.”
Cosatu says members of the working class have been the victims of this vicious spiral, with workers losing out on wages as they queue for days at a time to apply for documents, and home affairs officials, already battling a crippling 60% vacancy rate, having to manage long queues of frustrated members of the public and systems failures over which they have zero control.
Westvig says he understands Cosatu’s sentiment of banks not passing these costs on to consumers. But he believes the comments were addressed to the broader established banking industry, which is highly profitable.
“Cosatu did not consider the banks that are genuinely banking poorer customers who have not been adequately banked before. Banks that are 25 years and older have much lower growth rates, so the cost to bank new clients is heavily outweighed by the profit of existing customers.”
African Bank and OM Bank also serve this market. OM Bank CEO Clarence Nethengwe says: “As a new entrant to the market, OM Bank is mindful of the financial pressures many of our customers are facing. We are exploring ways to absorb the impact of the home affairs tariff increase so as not to pass on additional costs to our customers unnecessarily.” African Bank did not respond to the FM before the time of publication.
Jonker believes TymeBank would have to cover an additional R150m of costs for a mere database lookup for a regulatory mandated process.
“It would mean the difference between offering a free monthly bank account and having to start charging a monthly fee between R3 and R4. For a social grant recipient of R370 or unemployed and informally employed individuals, this is significant. We believe this undermines financial inclusion.”
Jonker says TymeBank would welcome any support from the industry, including the telecoms companies, to highlight this issue with the public and to put pressure on the government to reconsider using this blunt tool to fund the department. “More thought can go into how a system is deployed, what it costs and who should bear that cost.”
He says that while he is a great admirer of Capitec and is reluctant to argue with it, he nonetheless takes a different view on this issue. He believes Capitec is in a much stronger position to absorb these costs.
“Capitec still dominates this space, with more than 20-million clients, and has had longer and deeper relationships with its clients.” Jonker argues that Capitec, after years as the insurgent, is now behaving like the incumbent, trying to create barriers to entry.
TymeBank might be a minnow for now in terms of its balance sheet, but it has powerful connections. Its controlling shareholder is African Rainbow Capital (ARC), chaired by Motsepe, who also happens to be President Cyril Ramaphosa’s brother-in-law. ARC has cross-shareholdings with Sanlam. Sanlam CEO Paul Hanratty has said that while Sanlam has no plans to set up its own bank, TymeBank will be its preferred partner, particularly in the mass market.
The new verification fees might not knock TymeBank out of the banking business, but they would slow down its growth in the very bottom of the market, which is highly fee-sensitive.
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