Your alarm goes off. It’s 3 a.m. on the last Friday of the month. You don’t hesitate to get out of bed. You know you need to get to the local office of the South Africa Social Security Agency (SASSA) to get in the queue to receive your pension. You’re anxious. You don’t want to be late, otherwise you could lose an entire day. And you’re worried that someone may try to steal your money on your way home.
Unfamiliar to you? This was the experience of many of South Africa’s most vulnerable citizens the last Friday of every month when they received their government pension or social grant. But this has now changed. In 2012, the government of South Africa migrated government to person (G2P) payments previously disbursed in cash through SASSA to digital payments into bank accounts. Instead of queueing at the SASSA office to fetch cash, recipients can now withdraw it with their bank cards at any Shoprite supermarket or ATM, and have access to their money straight away. This is more convenient, saves time and reduces the chance of being robbed.
Digitising G2P payments is often perceived as a win-win. A recent study on G2P payments in South Africa found it more cost-effective for the government to make digital payments by leveraging existing infrastructure like banks and ATMs than disbursing them through cash. The sheer scale of grants in a country like South Africa, where more than 16.9 million people (almost 1 in every 3 adults) receive grants, makes it a particularly powerful financial inclusion tool. Evidence from four countries – South Africa, Brazil, Colombia and Mexico – showed that most recipients of social grants welcomed the convenience of electronic payments. Further, a bank account was seen as a “portal into the wider world of formal financial services, such as savings, insurance and credit” – a gateway to financial inclusion.
In practice, however, it’s not exactly a panacea. While digitisation has led to more efficient G2P payments, it has been less effective in ensuring that recipients reap the benefits of being financially included. The stark reality is that very few, if any, of these recipients use their new bank account for anything other than withdrawing their cash.
This has typically been attributed to lack of appropriate infrastructure – people will not use accounts if they do not have easy access to cash-out and digital pay points. But our recent study, which drew on data from South Africa, throws this assumption on its head. The study, Why Use Accounts? Understanding Account Usage Through a Consumer Lens, looked at account usage behaviour of 58 SASSA grant recipients living in urban areas with access to adequate infrastructure and found that over 90 percent of them withdrew all of their income as soon as they received it. In comparison, only 7 percent of non-SASSA account holders in the study displayed similar behaviour.
Why is that? Our study suggests four possible reasons:
1. KEEPING ADDITIONAL FUNDS UNDER THE RADAR SCREEN
Many recipients are under the impression that if they deposit additional funds into their accounts (regardless of the source of the money), their grant eligibility might be negatively affected, as SASSA grants are means tested. SASSA does not clearly communicate whether this is indeed the case. This is a common challenge for people earning money in the informal sector. When applying for grants they do not disclose this income, which keeps them eligible for the grants. This leads to people not adding money to their accounts, preferring to keep their cash at home. They are also under the impression that SASSA checks if their grant money is still in their account, which would cast doubt over their need for the full amount.
From two focus group discussions in Cape Town:
Interviewer: So you can’t save it (money) there (in the SASSA account)?
Respondent 1: “No.”
Interviewer: Why not, what happens to it?
Respondent 1: “They will say that you don’t need that money.”
Respondent 2: “They will think that you are employed somewhere or getting money somewhere else.”
2. FUNCTIONALITY LIMITS RECIPIENTS’ CONTROL OF THEIR FINANCES
A major reported drawback of SASSA accounts is that there is no easy way for recipients to check their balance and transaction history. Balance and transaction history are important mechanisms for adults to manage and take control of their expenses. While other bank accounts offer text notifications for each transaction or on demand, grant recipients have to phone in, or visit an ATM or certain access point to get their transaction history. So encashing it all and then using the cash is a more tangible way for people to keep track of how much is still available.
Focus group discussion participant, Cape Town:
Respondent: “And while you are swiping you don’t see how much is left (in the SASSA card).”
Respondent: “Because the SASSA card doesn’t give you the notifications onto your phone.”
3. POTENTIAL ABUSE UNDERMINES TRUST
There have been numerous reported instances of fraud on SASSA cards, where predatory formal and informal financial service providers exploit people’s relatively low financial education to make unauthorised debit order deductions from grants. Many consumers unknowingly signed up for these deductions. The lack of transparency outlined above also makes it difficult for recipients to monitor their account activity and detect such deductions. This makes it a safer bet for many to just withdraw all the money at once.
4. CURTAILED ABILITY TO USE THE ACCOUNT AS GATEWAY TO OTHER FINANCIAL SERVICES
In response to the fraud concerns, SASSA recently put a hold on all debit orders with the exception of certain funeral insurance contributions. However, this response is only a temporary and incomplete fix to the underlying issue: Rather than building in appropriate consumer protection measures, it is excluding people from all linked financial services. While debit orders give rise to potential abuse, it is also a critical mechanism for financial service providers and consumers. Providers use it as a mechanism to extend insurance and credit products to previously excluded markets on the back of the account. Account holders value the convenience as a commitment device for paying important bills like rent. Removing the scope for debit orders thus removes the ability of these accounts to meet adults’ needs for a broader suite of financial services, a critical driver of usage.
G2P payments are often the first exposure to formal financial services for recipients. This creates a major opportunity to grow access to financial services, but only if people use it. People will only use – and keep using – their account if they derive value from it. Infrastructure is an important prerequisite, but, as the SASSA example shows, there are other factors that influence decision making. Customers need clarity on the eligibility terms, enough transparency on account activity and balances to feel that they are able to control their finances, the ability to use the account as an access mechanism for other financial services, and sound consumer protection mechanisms, rather than limits on functionality, to instill trust in the product.
If these improvements can be made, the impact on South Africa’s most vulnerable adults will go beyond offering a better alternative to waking up at 3 a.m. with fear of not coming home with their pensions or grants. It will provide them with a potential gateway for effective financial services to meet their needs, which would be sizable payoff from digitising G2P payments.
Jeremy Gray is a senior research associate at the Centre for Financial Regulation and Inclusion (Cenfri) based in Cape Town.
Antonia Esser is a researcher at Cenfri.
This article first appeared in Next Billion on Tuesday November 22, 2016.