Postbank is in an ongoing court case with the former supplier, Electronic Connection, over its “payment switch” which enables the payments of social grants. Archive photo: Ashraf Hendricks
Last week’s “glitch” that affected thousands of grant recipients was related to a dispute over a “payment switch” software used by Postbank to pay the grants.
Postbank is in an ongoing court case with the former supplier of its “payment switch”, Electronic Connection. As of August, a new supplier has provided a “payment switch”. The migration to this new supplier caused last week’s glitch.
Postbank’s challenges with the “payment switch” software date back to 2018 and have still not been resolved.
Three Postbank board members have resigned in the wake of last week’s glitch, citing hostility from the Minister of Social Development.
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 BankServ Africa 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 onward, 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 that 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 the 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.
The migration to the new payment switch caused the so-called system “glitch” which on Monday 4 September left thousands of old age grant recipients unable to access their R2,080 grant on their SASSA/Postbank cards. There are reports that some disability and child support grants were also affected.
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. SASSA CEO Busisiwe Memela-Khambula 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.
Meanwhile, tensions between Communications and Digital Technologies Minister Mondli Gungubele and the board of Postbank resulted in the resignation of three Postbank board members, including the chairperson, on Tuesday this week.
“The increasingly hostile and oppressive attitude of the Minister towards the Board has become untenable, making it impossible for the Board to continue until the end of its term…,” the board members wrote in a letter on Tuesday.
Postbank’s payment switch woes
In the court papers filed on 31 July 2023, Postbank CEO Nikki Mbengashe explained in an affidavit that the Integrated Grant Payment System (IGPS) was designed in 2018 by FSS Technologies. At that stage, the South African Post Office (SAPO) still held the contract with SASSA to pay social grants.
For the IGPS to work, it needed the payment switch capability. The 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 Post Office free of charge for a period of six months.
The 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 Post Office to start paying for the use of its switch system.
In February 2021, Postbank took over the grant payments from the Post Office. Postbank is a subsidiary of the 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 the 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 instalment 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 cyber-attack that affected grant payments in December 2022, and an attack on a Telkom data centre in January 2023, which affected child support grant payments.
