In a different universe, Net1 founder Serge Belamant would be one of his homeland’s most admired personalities. A gifted fintech entrepreneur, his innovative efforts have brought financial inclusion to millions of unbanked people, delivering huge social benefits. Belamant’s company has also been acknowledged, after a lengthy and detailed Due Diligence, through a $107m investment by the IFC, the World Bank’s development arm. But in his native South Africa Net1’s hugely disruptive technology brought out the worst in the establishment, ruffling one too many feathers, eliminating one too many profit streams. Belamant and his shareholders have paid a hefty price after a competitor’s allegations of corruption triggered a lengthy investigation of the Nasdaq-listed company by the FBI, the SEC and even South Africa’s Hawks. Although Net1 came up clean, some of the mud has stuck, tarnishing the company’s reputation and smashing its share price. Belamant unwittingly inflicted some of that pain himself when falling for an “honorary PhD” scam that supposedly entitled him to add “Dr” to his title – a cause of great personal embarrassment when it was uncovered a decade after the event. The French-born maverick is now happy to withdraw from the source of his travails, refusing to tender for the contract to deliver the SA State’s social welfare and pensions to 10 million people in rural areas. Belamant, now based in London, is harvesting opportunities in a world eager for the change Net1’s products can facilitate. Here is his story. – Alec Hogg
Iâm in London with Serge Belamant, Chief Executive, Founder and Chairman of Net1 whose shares are listed on Nasdaq and the Johannesburg Stock Exchange. Serge, the Net1 story at the beginning probably starts with Saswitch, the company that linked all South African ATMs togetherâŚâŚ
Thatâs right Alec. My Saswitch involvement was in the mid-80s during sanctions times in South Africa where the country could not buy hardware or software from anybody in the world. Saswitch had been built on a technology from Christian Rovsing of Denmark which decided to pull out of South Africa in totality. The architecture theyâd built around their systems was not big enough to scale it to the size that South Africa wanted. They brought in a new management team and the first task that we had was to replace their system with something new.
It wasnât that simple because at the time, we already had 14 banks and the Post Office, connected to Saswitch. The volumes were getting to the point where the switch was unstable. Because of sanctions, we couldnât buy the hardware. Because of sanctions, we could not buy software so we decided to redo everything in-house. Weâre lucky enough to have worked with some European companies to get the first full tolerance computer available in South Africa, which we called the CPS, funnily enough. I think they were called Continuous Processing Systems 2000 and we rewrote the entire switch from scratch.
The switch is so that the different ATMs of banks can talk to each other, for instance an FNB client can draw money from a Standard Bank machine. Before Saswitch this was not possibleâŚ.
100%. There were two systems in South Africa the other one being Multinet, which was really a link-to-link. Four banks, interconnected with each other. You had as many connections as banksâŚbasically, 3 + 2 + 1 connection in order to get it right. You couldnât do that with 15 banks so they needed a switch that would allow all banks to connect to the switch and therefore, the ATMs. Cards needed to become interchangeable between banks to really create connectivity between them. It was a very successful project. Thereâs no doubt about that. The amount of time that we had to do it (and how well it worked) was actually amazing but again, I suppose I would say that because I was probably the architect.
It still works today?
Well, it works but today itâs changed. They might have added new software and changed the software. Nothing remains forever but for a long period of time, Saswitch became (and still is, I think) the third or the second-largest ATM switch in the world. For South Africa, itâs quite an achievement. Towards the end (about 1989), the banks were now looking at saying, âCanât we add to ATMâs and introduce Point of Sale?â The problem with that is that they all wanted to do Point of Sale online because thatâs the only thing banks do. It was a mag-stripe card and unless you spoke to the central computer at the back, you could not do a transaction because there was nothing that could work in an offline environment. The money wasnât on the card. The money was in an account. We looked at that and I designed another concept called the SasNet concept, which was for the whole of South Africa in order to do online real-time debit cards.
The cost for this was exorbitant because the communication protocols were different. You had to put nodes everywhere in the country. It was too expensive. It would have cost R500m/R600m in those days. Today, it would probably be R6bn, a lot of money and the banks decided not to do it. Because they decided not to do itâŚthis was in fact, when I had an idea myself, that I could do something differently â by going offline and using Smart Cards, which were very much in their infancy at the time. It was very new. I had a holiday on the South of France where I met some of my old friends from France who, funnily enough, were Smart Card inventors, businesses, or manufacturers. When I came back, I came up with the UEPS concept, which was what we called the FTS patent – the French Transfer Systems patent – which allowed two cards to communicate offline and the money would be loaded on the card.
Strangely enough, that was not the most complex part of it – how are we going to let an auditing system know that these particular things happened?
Read also: Serge Belamant of Net1: SA technology genius. Allan Gray’s a fan.
Just explain that. You have a card. You call it UEPS?
Universal Electronic Payment System.
And the money sits on the card?
Correct. In other words, the money is not in an account. The moneyâs on the card. If you donât have the card, you canât transact.
And if you lose your card?
Those were the questions. What do you do if you lose the card? We patented another thing, called multiple audit trails where we distribute the database of information between cards. Whenever I trade with somebody, my transaction goes to your card as well as mine but if you then trade with somebody else, the same transaction (incognito) will go to their card. We keep on swiping the transaction from one card to the other so even if you lose your card or if I lose my card, we will always be able to recoup these transactions through another card or through another merchant. It was a very complicated system to manage although it was very simple to use. Of course, it was biometrically enabled, which was the breakthrough in biometrics.
Biometrics meaningâŚ
It means that you could use your fingerprint as a means of identifying yourself, simply because we developed the system for people who were under-banked or unbanked. That was the whole concept. If you go to rural areas communication networks were not available, or they were expensive, or they were not reliable so you couldnât rely on them. People still wanted to transact and they were not going to move away from cash. If they were going to get an instrument, it was either going to be expensive or would prevent them from work because there was no online communication possible.
Therefore, we invented the system to make sure that we could roll it out and really in a way eliminate cash which was risky and of course try to create a financial inclusion platform whereby people would now have an audit trail. Once you have an audit trail for what you do then obviously by definition you have access to financial products simply because you can prove to someone that youâre creditworthy or how much money youâve made or where do you spend it or whatever the case was.
This is revolutionary, highly disruptive. You must have had resistanceâŚ
Strangely enough, we were not all that successful in South Africa at all. I even forget dates now but it was about 1993 or 1994 which was before Visa launched the EMV standard. We had already penetrated Namibia, Botswana and I think Burundi in those days and couple of other countries that believed in the system. South Africa was always seen to be a first world country rather than a first world country with third world people, for lack of a better word who had not banked. Nobody was really that concerned about their problems. They were more concerned about the first world people. In Burundi or places like Namibia or Botswana it was the other way around. They were more concerned about the local population rather than the few percentage people that wanted to see themselves as first world, so we were more successful outside than we were in South African.
How come things changed?
Brian Kenley was the Chairman of Saswitch so we knew him very well because he used to be our boss when I was at Saswitch. He was the deputy managing director of the SA Perm whose MD was Bob Tucker, a human rights lawyer by profession, not actually a banker (Tucker was appointed MD at age 36 and ran the Perm from 1983 to 1990). They were very progressive people and loved the model of being able to bank those thought to be unbankable – Â they backed us up. I remember we got a cheque from the Perm for R1m and we were over the moon because it was going to pay salaries for a number of months â fantastic, rather than the way we were living on a month to month basis. They were the first ones that allowed us to deploy the system in South African which we did.
Perm was bought by Nedbank which sort of threw the cats among the pigeons, with a real bank buying a building society which had a certain vision. Nedbank didnât have quite the same vision but they did buy into our UEPS system. Of course, the banks through PASA (Payments Association of SA) wanted to have a common standard across all of the banks, so they promoted UEPS as the common standard.
So we developed what they called the South African smartcard technological standard which was approved by all of the banks. But thatâs when Visa/MasterCard came in with EMV and basically scuttled the whole thing by actually saying why do you want to go with a local company thatâs going to provide you this, while weâre international and weâre going to come out with smartcards? They did but only 20 years later because it took another 14 or 15 years before they could implement anything.
What happened to the UEPS system?
In South Africa the UEPS system basically died out. But it did not die in Africa or elsewhere. We signed up Iraq, Ghana, and Russia where UEPS actually grew from strength to strength. We had 20-million cards outside of South Africa and nothing much in South Africa until 1999 when we started to get involved in delivering State pensions and welfare.
How did that happen?
FNB had the contracts. They owned CPS but werenât interested in it because they were running it as a small branch in the bank and it wasnât really making any money because it was all cash based. There was no real technology behind it and the bank wouldnât employ our technology because they couldnât take so much cash into the rural areas and they couldnât go offline. So everything was done basically with cash from your pocket to somebody elseâs pocket which is not exactly the most secure methodology of doing anything.
So we looked at it and we said maybe we can buy the contracts from them which we did. We paid something ridiculous like a 40 PE but it didnât cost much, because it wasnât making much money. Within two years of introducing our technology in KwaZulu-Natal and a few other places suddenly the company was starting to make tens and millions of Rands. It was called Cash Paymaster Services. We didnât change the name because it was well-known and they had traction. There werenât many pay points in those days, about 1500 pay points – we have more than 10 000 now. It was a small-scale cash management business. We converted that using UEPS technology to become smartcard based. In other words everybody has a card. You could use your fingerprint as a means of identification so you had proof of life that was built into the system. All of the stuff that was actually leaking a lot of money, not only for CPS but also for government, could be removed. This is why we made such a big penetration into the social welfare market.
How many provinces did you take over from FNB and how did it develop from there?
In those days we had pretty much all of them plus Namibia. But if you remember there was no SASSA (South African Social Security Agency) at the time, which means that everything was driven by each province. Every province used to go to tender on their own and they could award it to us or they could award it to somebody else. In a short period of time, I think we landed up with six provinces. The other three provinces went to AllPay, our competitor, which is really Absa. We were the only two players in the market for a long time and then a new player came into Mpumalanga. In Namibia we lost it for a while because it went to a Namibian company but it was using our technology. Namibia wasnât significant. Weâre talking about 30 000 or 40 000 people that we were paying; it wasnât a lot.
This has really also been the source of a lot of reputational risk for you with allegations of corruption which have bedevilled you for some time.
Yes. Unfortunately, this goes back many years because every time there was a tender awarded in any province, somebody immediately, especially the losers used to say âWell there must have been corruptionâ. Candidly, we canât blame them because we used to do the same thing. When we lost Mpumalanga we also said there was corruption, when we lost Gauteng to Absa we also said there was corruption.
Was there?
In my mind, absolutely, but at the time we did not have the appetite to sue or to actually take it to court. We were a very small company then.
Was there corruption from your side? Surely that would be a huge risk given that your company is listed in America?
The point is that because there was always this allegation of corruption regardless of the facts, as soon as the Americans smell anything could be going on, they focus on you very, very quickly. Remember we only listed in the US in 2005. Before that we were a South African company. There was a US piece of our company but it had nothing to do with South Africa. Itâs only after we merged the two together that now suddenly you had the regulatory system of the SEC, the NASDAQ, that came into effect. At that point the visibility and transparency we had to provide was far greater than ever before. We were not that concerned about it because weâve never played the corruption game.
Weâve always said, âIf they donât believe our technology is better than anyone elseâs they mustnât use it and if weâre not cheaper than anyone else they mustnât use it eitherâ because we always know that if you donât follow those two rules sooner or later somebody is going to go back and then say âWhere the hell did you get that, why did they pay R1 more to you rather than to somebody else?â Weâve never played that game so we werenât that concerned but it doesnât mean because youâre not guilty that people cannot play the game to say âBut with all this press thatâs coming out whereby there was corruption, there could have been corruptionâ. Candidly you still have to answer the lawsuits, you still have to answer your shareholders, and you still have to provide information to the FBI or the SEC.
Letâs just understand this. In South Africa the game is if you get a tender, automatically the other side believes there must have been corruption. You say thereâs no way you played that game because on top of everything you also have your US listing. But if somebody alleges that there was corruption the US officials have to do something about it?
They do, this is the thing. In the US they take it very seriously. The last tender three or four years ago was the one people took us to task on. Absa after losing started to report allegations of corruption directly into the United States. They knew we were a US company and then all the bells rang in the SEC and the FBI and you know we have FCPA regulations, so they commenced investigating. They never found us guilty. They never said we were guilty, but they said âWe have enough grounds to want to start an investigationâ and they did.
The investigation was spurred by a competitor that had lost a tender?
We know definitely by Absa, thereâs no doubt about that. Itâs not the nicest way of fighting for something, but they did it.
What happened?
They sent a whole team to the US to say âThis is the evidence we haveâ which is a lot of newspaper articles that were published about this or about that, whatever the case might be, which they themselves to be quite honest had fed into the newspaper in the first place. No reason for the Americans not to believe it. Maybe they should have done a little bit more work but considering you had a big organisation, you had Absa which is really Barclays, would they have doubted a big group?
If we had done it the other way around would they have taken us seriously? They took them seriously and wrote us a letter to actually say âWe believe that you may have conducted… â, and the phrasing was actually interesting, it was âYou may have actually implemented the scheme whereby the scheme would have led to the bribery and corruption of government officials in order to win the contract and we want to investigate thatâ. We of course had to appoint our own attorneys the American way.
I had my attorney, my CFO had his attorney, the board had their attorney, and the company had their attorney, $15m down the tubes in order to be able to do what? To collect all the information, millions of emails etcetera, sent to the FBI for investigation. Interviews of different people had to take place. Four years later weâre still waiting. The SEC as you know has closed down its investigation. Theyâve actually said âWeâre no longer interested in itâ.
The SEC?
Thatâs a regulatory body which actually normally drives these types of things. But they normally use the FBI as the investigating body. The SEC said âGuys weâve looked at all that for long enough, weâre not carrying on, we are not prosecutingâ but the FBI have not closed the case. We donât know why they havenât closed the case. People tell us that sometimes they take a while before they will close their case. Weâre expecting them to close it because we havenât heard anything from them for a couple of years now. We believe that the case is closed but weâve also heard that they never closed it. Theyâve put it on the shelf but theyâre never going to write you a letter to actually say âSorry guys maybe we made a mistakeâ but they donât do that.
Inside South Africa youâve had court cases as well where there have been all kinds of allegations.
Yes and those in South Africa, by the way, while we were fighting this American thing, the Hawks were doing the same thing in South Africa. But the Hawks at least, it took them a long time, but after three years they finished their case and they actually came back in writing this time to say âNet 1, you are not involved in any of this, you are not guilty of anything and there is no evidence whatsoever that youâve breached any rules or regulations in terms of tender awardsâ, which was fantastic. They normally work with the FBI by the way. The Hawks have some international collaboration agreement between the countries and they obviously told the FBI âGuys, you know these people, weâve done the investigation here and weâve found nothingâ and this is probably why the FBI have decided not to continue with anything.
Serge, in this case thereâs a smell and the smell just doesnât go away. Why do you think your life has been made so difficult?
Obviously we ask ourselves these questions as well. One, we believe there is no doubt that the whole competition thing with Absa was the big driving force. Thatâs what really gave a hell of a lot of news against us coming from the US and of course that immediately was picked on by the South African newspapers and between us and Absa we were not going to be getting a lot of people writing our side of the story. They were much more interested in writing Absaâs side of the story. The other thing which I think happened is that when we tendered and we provided an all-encompassing solution. It was a question of providing financial inclusion for 10-million people who had nothing before that.
What does that mean? Well financial inclusion is probably misunderstood by everybody that wants to read it. Everybody has their own ideas. Like an electronic wallet – what it meant to us is that you have to be able to provide financial services to people that never had access to them before. What are they? Is it the banking account? Well, you know you can go to any poor country in the world and I can assure you that having a banking account does not excite anybody because that sounds to them that âIâve got cash in my pocket, Iâve got to give it to you and then I have to pay you and Iâm going to get it backâ. That makes no sense to poor people, it shouldnât make any sense to us either, but somehow it does. Thatâs the first problem. What is the bank account for?
The bank account is there to provide audit trail of transactions because audit trail means you exist, audit trail means that you can go to other financial services providers and to tell them I have a history, I have a track record that allows me to do what, to get a loan. I know lots of people thought âPoor people shouldnât have loansâ. I donât know. I have a feeling that rich people donât need loans, so if poor people shouldnât have loans then no one should have a loan but we know everybody has a loan.
The fact that itâs done underground is beside the point. Itâs better to formalise it and to make sure everybody knows how much are you charging, what are you spending it on, etcetera. Thatâs something we did but by doing that we created massive disruption because, specifically in rural areas every merchant was a micro lender. Lots of other people that worked for, even government were micro lenders.
At the end of the day we disrupted all of this and we did it not only on micro loans, we did it on insurance, we did it on the sale of airtime, we did it on the sale of electricity. Because weâve always played the principle, if I can provide it cheaper and I can provide it with a better and more practical service for 10-million people why the hell wouldnât I do it? This is what created this attack on us simply because we were affecting the businesses of so many people.
When the next tender came up, given all this negative publicity, you decided not to bid. What happens next, do you withdraw your service?
Itâs a good question and again we had to say, âAre we going to bid or arenât we going to bid?â That was a hell of a decision to make and we decided âWe can now service these 10-million people outside of the SASSA contract simply because they now know about financial services. If they want something we can provide it and we can provide it outside of the SASSA netâ. We decided if we bid again for the SASSA tender, we going to land up with another lawsuit with the FBI because somebody will claim that we won the tender illegally. I wasnât prepared to go through that again.
Theyâre going to say you canât now sell any other products because now you conflicted because now you have a SASSA customer and that SASSA customer, if he buys airtime from you, although it might be another company in your group, there is some sort of conflict. There isnât. So we said, let SASSA run their own infrastructure; let them take it in-house, which is something theyâve been talking about for a long time. Weâll even help them to take it in-house, itâs not a problem and weâll continue to run our own financial services businesses including a banking platform in order to be able to say to the 10-million beneficiaries, maybe 3-million of you are interested in what we offer, the other seven are not, so be it. Then weâll pick up 3-million clients and weâll make sure that we continue to deliver what we are currently delivering to them. That was the rationale behind it.
Youâre in London now because of your global ambitions. Net1 around the world?
Net1 now is a slightly different company simply because we have partners for example like the IFC.
The IFC?
International Finance Corporation. Itâs the World Bank for lack of a better word. Although, I donât know if they would necessarily want to see it that way.
How are they your partner?
Theyâve invested $107m in our company, so they have 20% of Net1 and they did it for only one reason. They say that their job is to facilitate financial inclusion in the world in every country that they can possibly do it and thatâs their words not mine. Our system and our technology have proved to be scalable, workable, and cost effective and they didnât believe there is any other solution that theyâve seen in the world that matches ours. They said, this is the right investment, also financially because the IFC also is in it for a return at the end of the day.
https://twitter.com/newts2007/status/719777193509974016
Their vision is not two or three years but five or ten or fifteen years. But more importantly they believe that we can roll out this technology in many other countries in which they already have investments but are lacking a team of people that have done it, know how to do it and the technology behind that that they know will work and thatâs what we are now rolling out basically everywhere we can go and Africa already is obviously a home ground for us. We are now in places like, we havenât signed all of the deals but weâre deploying Zimbabwe at the moment. We have an association now with the government in Mozambique that weâre working on. Weâre doing the same thing in Uganda and Ethiopia and thatâs without trying very hard. Weâre now building a new sales team, whose job itâs going to be to simply market our UEPS-EMV interoperable technology all over the world, and thatâs got to be one of the primary products.
What happened with the 20 million cards that you had with the UEPS technology?
Theyâre still there. Once youâve got UEPS itâs hard to replace. Everybody says any other banking system will do it, but by the time youâve numerated ten things that UEPS can do that you cannot do with a banking system then they say well weâll continue with the banking system but weâll leave UEPS alone. In other words, letâs stop it over a period of time, it might die a natural death, but we canât replace it. The problem is it doesnât die a natural death. In Russia, for example, weâve had 15 to 17-million cards for 15 years, and theyâre still there.
Are they still being used?
Theyâre still operating and theyâre still being used and thatâs one of the biggest banks in Russia itâs called Sberbank, which is like a massive building society and itâs a bank as well. Theyâre still supporting that particular system. In those days, the royalty we were making out of it was not huge, and this was because we were not running the operations but it still shows you that the system has longevity. Thereâs the ability 20 years ago basically, it is still a system that is still better than what is available today. That, I think, is a testament that what weâve done is actually, not that bad.
Your share price on NASDAQ is at probably a quarter of the rating that you would expect for a technology company. Is this all to do with reputation?
I think so. I think the reputation or the damage that weâve suffered through the entire SASSA experience being the Absa initiated lawsuit in the USA. Being it the bad press that comes out of every newspaper about us giving people loans or not giving them loans or whatever the case might be. All of that, I think has tainted the company. In my view that is something that is going to be easily fixed. We donât have this problem in the rest of Africa. The problem is really localised to South Africa. The IFC, which by the way has been a fantastic plus for us because theyâve given back a lot of credibility because these people do their homework.
These are guys that took six months to do due diligence and I can assure you that they do cross the Tâs and dot the Iâs and cross the Tâs again, just in case. That credibility I think is going to help us to go past the stigma, which has been, created not necessarily by us but perhaps we have never been very good at PR. Weâve never been very good at marketing ourselves. Perhaps because we didnât feel it was up to us to take the limelight of what our systems could deliver. We would have preferred it if somebody else took the limelight or somebody else took the credit. We were quite happy to say weâre technology providers, weâll sit in the background, and weâll let everybody else get the brownie points. This hasnât worked for us, so itâs a mistake Iâve made, to be quite honest, as a managing director of the company. I should have actually thought about this before. I didnât but you canât think of everything.
If you Google Serge Belamant one of the first things that comes up is the scandal, if you want to put it that way about your doctorate, your PhD. What exactly went on?
Itâs always of course embarrassing. This started in 2003, we were not yet on NASDAQ. We only went there in 2005. We were still listing on the JSE and I received a letter of invitation from a university, which was connected to the UK, which basically said, âYouâve been selected on the short-list, by the board of the university to be awarded an honorary PhD, in information technology and management. Would you be interested in association with our university because we are looking for people of your calibre, etcetera,â so we followed it up by making a few phone calls and by sending back a few letters.
Serge Belamant appears to have bought his PhD from a university that never existed.
— A.O (@PILLAY_CGLM) February 28, 2016
For context… At the time you were a finalist in the Ernst & Young Entrepreneur of the Year competitionâŚyou had a pretty high profile, so itâs not unusual that someone might have offered you thisâŚ
We were listed on the JSE. I was certainly, linked to SASWITCH. We had published a few technologies, which by the way a lot of my algorithms are actually published in textbooks, which are studied in an Engineering Department in United States. Itâs not entirely surprising that somebody would have picked up the name and to type of say âwell maybe heâs the type of person or calibre of person we would like to be part of the universityâ. We looked it up on the internet and in those days, the internet was not the internet today, right. You had to dial up. There was no Wikipedia or Google Maps or any of these things to be able to do, what I would call a thorough due diligence. Everything looked Kosher (for lack of a better word). There was nothing wrong with it, so we followed through, and made a few phone calls and asked them what do you want?
They said we need all your information. We need to know what you did and when you did it, etcetera. We had a lot of that stuff prepared from the days of the Ernst & Young competition. We had documentation prepared. We followed it through. They came back to us and said, you know what, with the extra information we believe that you are definitely or will be selected as one of the candidates but we need some cash from you because we need to send you your robe and we need to send you your certificates and everything else. We also ask you to give a donation.
There was a number of ranges of donations that you could give. Well it was 13 years ago â I canât remember what I had for breakfast last week, so 13 years ago, we looked for the financial statement and we couldnât find it. Even the bank couldnât find them but it was maybe ÂŁ1000. It could have been ÂŁ2000, but it couldnât have been much more than that. We said, âYou know what, to the university, it looks like youâve got cause of what their raising money is understandable,â because itâs a distance learning university, so they want to facilitate access to learning for other students, who cannot afford it. So you give them the donation. Three weeks later, they send me all the paperwork and the certificate, the plaque, which was nicely engraved and the nice letter of recommendation and what you could do with it âHow to join the Alumni Clubâ.
I did it and we published it. We told the board. In 2005, when we listed the company on NASDAQ it was part of the due diligence process. So itâs not like weâve hidden anything away. Everything was there. It was sitting in my office. I still have the certificate, which we took down now but it was there, so itâs not like we hid anything. It came out in a number of articles in South Africa. Even the plaque was actually, displayed five or six years ago by one of the journalists. Nobody ever challenged it. Nobody ever said but weâve checked this out and, for whatever reason, we believe itâs bogus. This only came out, as you know, from the US because there was a group of short sellers. I donât know how it can be legal in United States but apparently it is. Whereby, you try to destroy the company in order for you to make a buck, and you try to find out any rubbish you can in order to make sure that the share price goes down.
Now, those people by the way, didnât win because although the price did go down because of that but shot back up when the IFC bought into Net1. Of course we disclosed it to them as well to say, âGuys, are you sure you know what youâre doing because unfortunately, this is whatâs happened?â Iâm not going to say to that I didnât do it because I did, but I didnât know about it. I really thought it was genuine. They came back and said we did a big analysis and a private investigation on your lifestyle: who you are, where you came from, what you did, and where you studied and weâre very comfortable that we have no interest in this thing. We donât care about it. Of course, our price immediately shot up, which means the poor shorts in the United States lost a lot of money and they were not too happy about that. In fact, the guy actually published it to say âthis is not going to be a good thing for my short sale thesisâ â that was his article.
It said that it happened and itâs more embarrassing, to be quite honest, for me and my family than it was embarrassing for anybody else. Did it really matter in my life, the fact that I did or didnât have it? Not really, I had patented a lot of things before and Iâve patented lots of things after, which really had absolutely nothing to do with the fact that I had an honorary PhD in information technology and management. It was one of those unfortunate things. I just wish that somebody would come out with one of the two things that I did do, which are actually quite nice. Rather than to always worry about the single, little thing, which at the end of the day, they use as a weapon to try to somehow, attack your credibility because thatâs what itâs all about.
Do you think itâs because youâre a disrupter?Â
Itâs my personality and itâs not going to change. Iâve always been known to actually say it the way I see it. Iâm a strong believer in what we do as a company. Iâm a strong believer that…I canât do something or I cannot sell something that I donât believe in, so if I believe strongly in it, Iâm going to defend it, which means that if I think our systems are better than anyone else, Iâm going to tell them. They donât have to believe it. Then we can compete but when we compete, we win, so at the end of the day it does upset other people. There is no doubt about that. We are a disrupting technology and, by the way, thatâs what the IFC called us as well. We are a disrupter. They want disrupting technology because it means innovation, progress, lower prices, more services, more products and thatâs what disruption means.
Looking ahead into the future, what are you disrupting?
We are changing the entire banking model and thatâs the whole point. Weâre basically, saying should banking be you putting money in the bank for the bank to invest it the way they want to invest it and what are you really getting out of it? Youâre getting 5% and theyâre lending the money at 15%. Weâre saying âis that rightâ and we donât think it is. At the end of the day, weâre saying âbanking for us is a customer acquisition processes. Iâm going to give you the basic functionality that you need to transact and Iâm going to make very little money out of that. In fact, we do not charge any bank fees. There is no account fee every month. There is no banking fee every month. Thereâs no joining fee. Nothing, zero, and you only pay if you use it or if you have access to another product that we sell for third parties.
Now, thatâs real, financial inclusion because it means thereâs no barrier for a poorer person or an unbanked person to do this because heâs saying, âhang on, if I donât us it Iâm not paying anything, so what have I got to lose?â If I do join it, I will have the ability to have access to a loan, to insurance, to medical products, to airtime, to electricity, to money transfers and to many other things, which today I cannot do. Even if I can do those things, Iâm going to be paying through the nose because of the fact that itâs informally provided, rather than formally provided. To me, weâve been able to reduce costs and without a shadow of a doubt, our loans are probably 1/3rd of the price of any other lender in the country, 1/3rd of the cost. Our insurance is at least 40% cheaper than any other insurance.
Our airtime and electricity is cheaper than anybody else in the country because we do not do anything that is not cheaper and that is not better because we know that, sooner or later, if you are not going to be cheaper and better then youâre never going to be able to defend your case. People, by the way (poor people) are not stupid. They might be uneducated but theyâre not stupid, which means sooner or later they know who is cheaper and it doesnât matter what and who has been saying anything, at the moment, in South Africa. We are still signing 80-thousand people a month on our banking platform. Everybody told them not to do it but theyâre doing it. We have 1.4-million people that have got a financial service with us, like a loan. Weâre signing 20-thousand insurance policies a month. We must be doing something right. We have 5-million users of our USSD online portal, selling electricity, airtime, and money transfers.
Are we conning all of these people? Are all these people stupid? Why are they doing it? Theyâre doing it because they know that one) we are there. Two) we provide the service. Three) the service is reliable and consistent. Four) we are cheaper than anybody else. Five) they trust us because we have actually, been distributing pension and welfare to them as the Net1 Group, but it might be through CPS. Weâve been doing it for so many years that we donât miss a beat and when they need us to be there, we are there and we pay them every month.
Is this done on a card base or cell phones or internet?
We have all the different channels. Weâve got branches, weâve got trucks which can be anywhere. Weâve got our own USSD portal, and weâve got an application on the phone, which is a mobile application. Weâve got point of sale devices, weâve got our own ATMs, and weâve got a thousand ATMs that weâve deployed. They are all biometric, by the way, so everything is around the biometric standard, using your fingerprints, which for poor people is the only things that works because otherwise old people tend to use their date of births, which means itâs too easy to guess their pin. By the way, this created a lot of problems over the last couple of years and I donât know if you know about this but there was a big fight between PASA and ourselves, whereby we had biometric, which is our own biometric system on 10-million cards. They decided that no, this was not a national standard, so they decided that they had to go to the rest of the banks and start building a new biometric standard, which theyâve done now, with Visa and Master Card. But thatâs a standard, which exists on a piece of paper. No bank is committed to doing it. No bank has deployed any ATMs or any point of sales that utilise its biometrics but in a way, theyâve managed to block us out of the market.
What is PASA?
PASA is the Payment Association of South Africa – they implement policies from the SA Reserve Bank. Who are the members of PASA? Itâs the banks. Weâre not a bank, so we canât even talk to them. We do have relationships with them but weâre not part of the committees. Weâre not part of the payment clearing houses. Weâre not part of any of that. Weâre sitting on the outside and weâre competing with the people that make the decision to have us or not to have us.
Youâve proved your case in South Africa. Not the focus is going to be outside of the borders because of all these obstacles that youâre hitting?
Absolutely. We love South Africa. Itâs a wonderful country but itâs small. From a GDP point of view, what is it today? Maybe a Âź% of the worldâs GDP, so you canât build an international company in South Africa. You can only build a South African branch of an international company. We started there and we are very grateful of what weâve done with Government and theyâve given us opportunities to be able to have 10-million customers and to prove our case, and weâre delighted about that. Now, we want 100-million customers, or 200-million customers. We canât get them out of South Africa. Weâve got them all. Weâve got 20-million people out of 50. How many more can we get?
We are still focusing on the unbanked and under-banked populations of the world. What can we do to somehow make their lives more palatable and easier? A simple example: winter is now in South Africa. In the middle of the night you run out of electricity. What do you do? Do you go outside and see if you can get a taxi to drive you to where, to a shop where you can go and buy electricity? It doesnât exist, right, so you use your app, and you simply, immediately can actually get electricity. The way weâve done it is that even if youâve run out of money we will immediately give you an emergency amount of R50 for electricity.
You can have a warm dinner. Your child can come back from school and instead of trying to use a candle to do his studies he can actually have a globe, whereby he can see what the hell heâs doing. Thatâs the type of thing that weâre proud of being able to do. The same thing happens with airtime. Youâre in an emergency and what are you going to do? We sell a voucher for R5, so a R5 voucher, you can buy two if you want to but itâs there for emergencies. If something happens to you, you want to phone someone, and you donât have the money, what do you do? Well, you phone our USSD string, and weâll give you R5 credit. Phone the ambulance. Phone your mother. Phone your friend. Phone the neighbour or do something. Thatâs the type of thing we do.
Loans, people say we shouldnât offer loans. I understand is that some poor people canât afford loans but they need them. At the end of the day the mother wants to go to the doctor because the child has broken his arm. She doesnât have money to pay the doctor, so where do they go and what do they do? They get a loan. Now, we do what we call Focus Loans. We donât give them the money. We give the doctor the money and because of that, we get a kickback from the doctor, which we pass 50% back to the person who went to the doctor. We give them a loan at very reduced rates. We donât charge interest on our loans. We donât charge initiation fees. We do not charge any cancellation fees.
We only charge a fixed monthly management fee, which is cheaper than what is, set by the National Credit Regulator. In other words, we are immensely cheaper than everyone else. Why? Because everything is about not making money out of loans â itâs about âthey need loansâ. Letâs try to see if we can make sure that, they have access to a loan cheaper and easier than what they did in the past.
How many people use these services?
Weâve got 1.4-million that are using the service and thatâs growing every month.
And you can roll it out elsewhere in the world?
That is part of our UEPS-EMV solution, in other words everywhere, where we are in the world, weâre rolling it out in Botswana at the moment, and weâre going to roll out in Uganda. Weâre going to roll it out anywhere we are. Itâs the same model. Itâs really financial inclusion in the bigger context. We are not the company that says âwe will be the only ones that can give loansâ. We donât want to have exclusivity on it. We donât force the people to have a loan from us. Some of them donât take a loan from us. We also donât mind if other people want to implement our technology to be able to have a loan the way we do it because we also use fingerprints as a means of proof that in fact, you did enter into a loan agreement. At the moment, through the banking system, you have to bring the pin. Now, what the hell is the pin worth? It could be anybody getting the loan.
The fingerprint is the difference – thatâs why we have no repudiation on our loans. Because the people know that if Iâve put my fingerprint there we are 100% certain that the loan was given. We also try to build the systems in a way that is practical and easy for the greater population to use it, without actually, opening themselves up to risk. Sometimes they still do. Thereâs always going to be fraudsters out there. There will always be somebody that will try to feed off poorer people but it doesnât mean because you have two thousand transactions a month of 18-million that somehow could be suspicious that youâre going to close down the other 18-million. What you have to do is continue educating the population, telling them what you can do, what you canât do, what they should do and what they should watch for but it doesnât mean you throw out the baby in the bathwater.
Thatâs the fight weâve been having for the last couple of years now. To say, âWe cannot go backwards. Weâve done something that the whole world looks at and says how the hell do they do this?â Thatâs really, what people are saying. âHow did they do this? How did they manage to put 10 to 20-million beneficiaries and 10-million children on the system in less than 13 to 14 months? How did they do that? Now that weâve done it, this is a world first, itâs a real world first that I think South Africa, the Government, and we are very proud of thereâs no doubt about that.
Where do you draw your inspiration from?
Talking to other people, Iâm on different panels in different countries of the world and you talk about what weâve done and everybody has got different problems. Everyone has got different problems. If you go to Indonesia or the Philippines or South America you have poor people everywhere but people have got different ways of doing things. In Brazil their social welfare system is based on what you have to do to get your grant. Rather than I donât have to do anything, Iâm just going to get one. How do you monitor that theyâve done what theyâre supposed to have done? For example, the child must attend school for more than 18 days in a month, otherwise you do not get the Child Grant.
Our system monitors that because the child has got a fingerprint and when he comes to school heâs got to click himself in, and we know heâs there. So we can build these systems around the programs that each of these individual countries wants to put together. All that in order to kick out the crooks, the duplicates, the people that donât exist, the people that should not have a grant and there are many of those by the way. Weâve already saved the fiscus something like R3.5bn by removing hundreds of thousands of beneficiaries that didnât exist. Thereâs still more work to be done because weâve built a 220-million fingerprint database, and we check for all duplicates, so weâve identified people that are there twice, or the people that looks like theyâve been 30 times, so weâve removed all of those.
That plays a huge part to save the fiscus a huge amount of money, which they can redeploy in other social welfare programs or use it for whatever else they want to use it. Thatâs what our strength is. Weâve built the technology. It works. Itâs available. Itâs got all of these things in it. Our job now is that when we go from country to country is to actually, explain how they can apply it to their own specific conditions, which might be different from one to the other. The common factor is there are more poor people than there are rich people. There are more rural areas than there are urban areas. They canât afford communication. They canât afford electricity. They may not have electricity and they need systems that remove cash, because cash is almost a death warrant. So you can remove all of that and what system can do that better than ours? There arenât any.
Do you read? Do you look at people in history? Are there those kinds of people inspiring you?
There is no doubt that I still follow a lot of the IT developments or scientific developments. I enjoy that very much, to find out what are the breakthroughs and where things are going. You look at Bitcoin. Is that are likely to make an impact? How is that going to work because that is also another big disrupter? By the way, is probably going to die a natural death any minute now because I think all of the banks that have gone into it now. They didnât go into it because they wanted to use it. They went into it because they want to kill it okay, so thatâs likely to actually, happen so I look at that and then you also read a lot of books. You read things like thereâs a book called âThe Fortune at the Bottom of the Pyramidâ, which was written by an economist. Theyâve been written by people that are more philosophers and you read these things just to try to see how does someone else thing.
Would you think that there is money at the bottom of the pyramid, of the so called poorest of the poor? Well, if you read the book then you suddenly find that there is but itâs not money the way you see money or the way that I see money. Itâs a different type of wealth. How do you then convert that wealth into something that is transactional? That you can do a transaction with it and thatâs what our systems are good at doing. We can take a bad coin and convert it into a US Dollar. We can take a loyalty point and make it look like a Master Card, so we can do, and we can allow closed systems that today are shunned by everybody. In other words, everybody would like to close them down. We are allowed to take those systems and we can suddenly make them inter-operable with First World systems, which exist and that immediately creates, by the way a huge competition. Before the systems were closed out, you couldnât trade with them. Now, suddenly theyâre in the net, which means that they can start competing and theyâre competing with the others. By definition, we are creating more and more opponents. We still think that at the end of the day, there are 7-billion people in the world and 5-billion are poor. If we had to do a vote, we would win it.
