NSFAS Four not registered financial service firms, private banks offer better student deals: Outa

Four companies contracted by the National Student Financial Aid Scheme (NSFAS) to pay allowances directly into students’ bank accounts are not registered financial service providers and relatively new firms with “very little proof of experience as fintech companies”.

These are among the final findings contained in an update of an October investigation report compiled by the Organisation Undoing Tax Abuse (Outa) on the direct payment of allowances to NSFAS beneficiaries.

There has been a huge outcry over the controversial direct payment system which resulted in students marching to the Union Buildings in Pretoria last Wednesday.

North West University (NWU), the University of the Free State (UFS) and Vaal University of Technology (VUT) were forced to close their campuses for in-person lectures last week after student protests about excessive bank charges levied by the fintech companies under the new system. From Monday, the Durban University of Technology (DUT) started online learning because of last week’s protests.

Deductions from students’ monthly allowance of R1,650 include R12 for banking fees, R10 for ATM withdrawals and R2.50 for every R100 withdrawn.

Previously, the allowances were paid by the universities or service providers contracted by them.

NSFAS, which is funded by the department of higher education, provides bursaries to students from poor and working-class families. To qualify, a student’s combined annual household income must not exceed R350,000.

The scheme awarded five-year renewable contracts to Tenet Technology, eZaga, Norraco Corporation and Coinvest Africa to pay allowances directly into the bank accounts of beneficiaries studying at the country’s 26 public universities and 50 technical vocational education and training (TVET) colleges.

The Sunday Times reported at the weekend the companies will rake in millions of rand from the deal. According to calculations — based on the 360,771 university students who have so far been “on-boarded” to the new payment system — the four will score R4.3m a month through the R12 banking fee deduction.

Meanwhile, other findings in Outa's 59-page report, released on Tuesday, include:

• The new tender had only five mandatory requirements compared with 20 in two similar bids that were cancelled;
• The mandatory requirement to have a banking licence was substituted with a requirement to have a banking licence or an affiliation with a bank or a sponsorship by a bank;
• Access Bank, the alleged sponsor bank, is not listed as an official bank with whom state institutions can transact;
• None of the four service providers that were awarded the contracts submitted bids for the previous two tenders;
• Only two of the service providers are registered as VAT vendors, though their projected turnover is expected to exceed R1m per annum;
• After negotiations with the service providers, NSFAS agreed to a monthly fee of R102.35 on its bank account, but decreased the monthly fee to R29 and eventually R12;
• Desktop research shows at least three commercial banks offer better and cheaper banking facilities to students, with more value-added services than the NSFAS bank card;
• Three transactions on a NSFAS bank card will cost students almost 4% of their monthly allowance, the equivalent of two meals for some; and
• The NSFAS direct payment scheme will cost the students collectively more than R3bn for the remainder of the service providers’ contract period.

According to the report, the companies, which were awarded the contracts in June last year, were appointed “instead of established and experienced financial service providers”.

“The four service providers will collect approximately R705.6m per annum from students (based on the 10 months of the year students receive allowances) and R3.1m for the remainder of their contract period.”

It stated that more than R3bn will be collected from students and ultimately from the taxpayer in the next four-and-a-half years “for a service that can be done much cheaper and ought to be done internally by NSFAS”.

Some of Outa’s recommendations include:

• The service providers stop the onboarding of students until there is absolute clarity on the fee structure of the NSFAS bank card;
• The auditor-general of South Africa take cognisance of Outa’s report when it audits NSFAS;
• The SA Revenue Service (Sars) takes cognisance of Outa’s findings on the VAT vendor status of two service providers; and
• The public protector takes note of Outa’s report when investigating the complaint against the direct payment system that was submitted by Stellenbosch University’s Student Representative Council (SRC).

Tenet Technology referred queries to NSFAS. Merilyn Makelve, a director of Cointech Africa, and Ismail Ally from eZaga, did not respond to WhatsApp media inquiries.

NSFAS board chair Ernest Khosa told a media briefing on Monday that the websites of the fintech companies were the targets of cyber attacks.

The accounts of students are hosted by the four firms and there was no doubt the cyber attacks were intended “to steal students’ data and intercept allowances and render the new system unsafe”, he said.

“NSFAS is investigating such cases. We have alerted law-enforcement agencies of such activities,” Khosa added.

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