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Postbank board axed over unlawful contracts after ‘glitch’ interrupts social grant payments

Postbank board axed over unlawful contracts after ‘glitch’ interrupts social grant payments
Grant beneficiaries sit in a long queue outside Sassa’s office in Bellville. (Photo: Qaqamba Falithenjwa)

Postbank’s board of directors has been fired and the company has been placed under administration after a forensic investigation found that Postbank had maintained contracts with suppliers unlawfully, the Minister of Communications and Digital Technologies announced on Thursday.

Postbank’s board of directors has been axed after a forensic investigation found that Postbank maintained contracts with suppliers unlawfully. This comes days after the nationwide system failure which affected payments to 600,000 grant beneficiaries last week.

Mondli Gungubele, Minister of Communications and Digital Technologies, on Thursday, 14 September, held a media briefing to update the public on the social grants payment debacle.

He was joined by Social Development Minister Lindiwe Zulu, who apologised to grant beneficiaries.

“Postbank is very important. They must communicate to us every time there is a problem because we must always have a Plan B so that people do not suffer the way they have suffered, going back and forth,” said Zulu.

Meanwhile, in a statement on Thursday morning, Gungubele said that an administrator has been appointed, pending the appointment of a new board.

Three of the board members, including the chairperson, resigned on Tuesday. They claimed in a letter that the minister had been “hostile and oppressive” towards them.

Gungubele rejected this accusation. He said that governance issues at Postbank had been standing in the way of the government’s goal to build a functional state bank that would benefit poor people.

In August, Postbank had migrated to a new payment system which disrupted payments to 600,000 social grant recipients since Monday.

Postbank CEO apologises for system failure

During Thursday’s media briefing, Postbank CEO Ntomboxolo Nikki Mbengashe said that the majority of the 600,000 affected beneficiaries have received their grant money.

“Things like this do happen,” Mbengashe said. “I cannot stand here, with an understanding of technology, and say that 100% something like this will never happen again.”

She said that although relevant tests had been conducted on the new system prior to launching, the transition still “didn’t happen as planned”. The failed transactions were manually reversed, she said.

Mbengashe apologised for the inconvenience and said that she was raised by a grant beneficiary. “I know how it feels not to get your money in time,” she said.

Beneficiaries opt to get grants in personal bank accounts

Following this payment failure, many people were forced to take loans to buy basic essentials like food. On Thursday afternoon, GroundUp spoke to beneficiaries who were seated in a snaking queue outside Sassa’s office in Bellville.

Most wanted to get rid of their Sassa gold cards. They said they were worried about further issues with Postbank. The Black Sash told GroundUp that many pensioners with Sassa cards are still waiting for their grant money.

Eleanor Adams (69) said she got her pension money last Thursday and her husband is still waiting for his pension. She was at Sassa to link her grant payments to her new bank account.

“My husband hasn’t got his money yet, so we’re both depending on mine for now. They could have told us the truth and not let us wait like that.”

Nomalady Katshwa said she travelled to five different grant sites to try and withdraw her grant before she found out about the system “glitch”. She has been borrowing money to visit different post offices. “I’m making debts on money I don’t even have yet.”

The cause of the grant payment ‘glitch’

Members of Parliament’s Portfolio Committee on Social Development were told on Wednesday that last week’s “system glitch”, which affected thousands of social grant recipients, was caused by software Postbank uses to pay grants.

This “payment switch” software enables Postbank to connect to the BankservAfrica platform and process transactions through the Integrated Grant Payment System (IGPS). About 35% of grant recipients, a total of 6.3 million people, receive their money through this system, which pays the money into Sassa/Postbank cards.

GroundUp has recently been given court documents describing some of Postbank’s troubles with the “payment switch” software, which dates back to 2018. These challenges came to a head on 31 July 2023, when the company which supplies the software, Electronic Connect, threatened to suspend the service by midnight unless its invoices were settled by Postbank.

In an email at 8.50am on 31 July, the company told Postbank it was owed R1.9-million for May and R1.7-million for June. From July onwards, it also wanted to be paid 10 cents per payment authorisation, in accordance with the agreement between Postbank and Electronic Connect.

Postbank then approached the high court on an urgent basis. In the court papers, Postbank acknowledged that it owed Electronic Connect, but said it could not pay the outstanding invoices because of ongoing investigations into Postbank, and National Treasury had not approved the agreement between the two companies because it did not comply with public procurement protocols.

Postbank wanted the court to give it permission to pay the money. Postbank also wanted the court to order Electronic Connect to continue providing the “payment switch” software.

The court granted the order on 2 August 2023 and Postbank proceeded to settle the invoices. A high court review of the agreement between Postbank and Electronic Connect is yet to take place.

GroundUp understands that Postbank has since appointed a new provider for the payment switch, although Electronic Connect still runs the core banking platform.

GroundUp understands that the “glitch” was caused by inadequate testing on the new payment system. The IGPS system handles about 20 million transactions a month and traffic peaks on grant payment days at the start of each month.

More than a week after the “glitch” many beneficiaries are still struggling to get their money. Many people have had to take loans to buy food and cover essential household expenses.

Postbank and Sassa, under the leadership of the Departments of Communication and Digital Technology and Social Development, respectively, have not provided GroundUp with clear answers on what had caused the payment issue.

Social Development Minister Lindiwe Zulu told MPs in Parliament on Wednesday that the issue was related to the “payment switch” software. 

Memela-Khambula, Sassa CEO, said that Sassa was only informed of these changes at Postbank on Tuesday last week after it became evident that beneficiaries had not been paid.

Postbank’s ‘payment switch’ woes

In the court papers filed on 31 July 2023, Postbank CEO Mbengashe explained in an affidavit that the IGPS was designed in 2018 by FSS Technologies. At that stage, the South African Post Office still held the contract with Sassa to pay social grants.

For the IGPS to work, it needed the “payment switch” capability. The SA Post Office had its own payment switch, but it was not compatible with the IGPS.

FSS Technologies then offered its payment switch system to the SA Post Office free of charge for a period of six months.

The SA Post Office was supposed to procure its own switch in the meantime, but it did not do so. Instead, it continued to use FSS Technologies’ switch. In 2020, FSS Technologies told the SA Post Office to start paying for the use of its switch system.

In February 2021, Postbank took over the grant payments from the SA Post Office. Postbank is a subsidiary of the SA Post Office.

Also in February 2021, FSS Technologies suspended the switch service for two hours. This resulted in payment issues which affected more than 120,000 beneficiaries nationally. Postbank was fined R17-million by Sassa for this incident.

Postbank and FSS Technologies then agreed to pay 21 cents per transaction processed through the switch. But National Treasury did not approve the agreement because proper procurement processes were not followed.

Postbank then stopped payments to FSS Technologies for the use of the switch. In May 2021, Electronic Connection took over from FFS Technologies in licensing the IGPS to Postbank.

A settlement agreement was reached between Postbank and Electronic Connect in December 2022 for the switch system. Postbank would pay R46-million for the past use of the switch, in two tranches. The first payment was made, but the second installment was not paid, pending the outcome of a forensic investigation being conducted by KPMG.

The email described above on 31 July by Electronic Connect notified Postbank that the licence for the payment software would expire at midnight. It said it would only be renewed if Postbank settled the outstanding invoices. Another email was sent at 6.51pm.

Postbank’s lawyers then asked Electronic Connect not to suspend their service and approached the high court on an urgent basis.

“The Board of Postbank is reluctant to make payments to FSS or Electronic Connect in circumstances where the Payment Agreement has not been regularised,” Mbengashe said in her affidavit.

“They seek this Court’s approval to make a monthly payment to Electronic Connect pending the outcome of a review application to be brought by Postbank in which the Payment Agreement will be regularised and a just and equitable remedy that averts interruption to the payment of Sassa grants is sought.”

Other technical issues at Postbank have included a cyberattack that affected grant payments in December 2022, and an attack on a Telkom data centre in January 2023, which affected child support grant payments. DM

First published by GroundUp.



Comments - Please in order to comment.

  • Pet Bug says:

    I didn’t know that one could get fired two days after resigning…?
    So what is it?
    Did most of the board resign, noting hostile Minister; but peeked, said Minister fires the lot? Hey?

  • patrickmtolo says:

    It is very painful that the DA and ActionSA are doing little or nothing to send their message to us who live here in the townships, informal, and rural areas. For example, the DA is doing nothing to tell the lowest people on the ground that it is a lie that when they come to power, they will bring back apartheid. In taxis, funerals, shebeens, weddings, and lobola gatherings, you will often hear almost everybody complaining about the ANC. But, again, you will hear them say that they don’t see any other party that can do better than the ANC. Everywhere you go within my community, you are more likely to hear people say, “But what can we do? There is no alternative to the ANC. When you mention the DA, they will say “Aish, but the DA will bring back apartheid”. That is because the ANC has made sure that every black child in a poor household is taught by the teachers, the churches, the community, and every institution that the DA stands for apartheid. Why is the DA doing nothing about this? Mama Helen made an election-winning statement when she said, ” A poor person who lives in the Western Cape is far better than a poor person who lives in any province in South Africa other than the Western Cape.” That statement resonates with the poor far better than one that starts with, “Where we govern, blah, blah.” Why did the DA not use it? Coalitions are excellent, but they will not win over the poor people on the ground. We, the people in townships, shacks, and rural areas, want to hear a continuing message that talks to us at the lower levels of society. Otherwise, the majority will continue to vote for the ANC because they feel there is no alternative to the ANC. The DA must start coming to us here in the townships and informal settlements, also go to the radio, Facebook, and WhatsApp, and say a simple message that says, “When we come to power, we will not bring back apartheid. Look, a poor person who lives in the Western Cape is far better than a person who lives in any part of South Africa. This message has to be so repetitive that even a young child knows and believes it. The readers of this paper, please try and do something. We, the poor, are tired!

    • Max Ozinsky says:

      You and Zille’s argument fails on the simple fact that more people migrate from all parts of SA to Gauteng every year, than move to the Western Cape. So by your logic the governance in Gauteng must be better than in the Western Cape.

      Maybe the devastation caused by the hundred years war against the Khoi and Xhosa fought by those who brought liberalism to SA, the English, has something to do with the problems in the Eastern Cape.

  • Caroline de Braganza says:

    Social Development Minister Lindiwe Zulu only apologized in a media briefing on 14 September, nine days after SASSA grant recipients, including me and my husnand, suffered massive stress not being able to access our money.

    Thanks to tweeting on X I managed to establish what the problem was. Postbank only posted information at 1430 on Tuesday, 5 September. Many of us on X tagged her and our president in our tweets but got no response or apologies.

    I could only access my money on Friday, 8 September. Still encountered a problem in that both my and my husband’s cards reflected nil balance after withdrawing the money at an ATM whereas there should still be a small amount left on our cards of around R50 each.

    I read many horror stories from others on X of the trauma experienced by many – including those who didn’t have money to pay for transport home. The silence from those in charge demonstrates their lack of empathy.

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