Cutting Edge Companies: Net1 UEPS

by Stephen Franco

Developing countries confront a number of challenges altogether unfamiliar to the industrialized world. For example, how to disburse welfare payments to poverty-stricken citizens living in remote villages that lack a banking infrastructure or even electricity? The legacy answer was to dispatch payment agents and armed guards to a temporary kiosk once per month to distribute cash to the villagers. This enormously inefficient system was beset by corruption, administrative errors, and crime, as recipients were targeted by thieves cognizant of the monthly payments. It also discouraged savings and promoted price gouging as recipients quickly spent their money on hard goods rather than risk storing paper currency.

An innovative technology company called Net1 UEPS has delivered a smart-card solution to the South African market, where 40 percent of the population is “unbanked” and 54 percent live in rural locations. The system utilizes a smart card embedded with a small chip, powerful encryption, and biometric fingerprint authentication technology. Payments are automatically loaded onto the cards on a monthly basis and Net1 pays nominal interest on unused balances. Cardholders can receive cash from 8,500 ATM-like terminals located throughout the country or can use them for payment at more than 4,000 merchants who rent POS terminals from Net1. A key feature of the system is that the smart card functions as a self-contained bank account: Transactions can be completed offline, stored on the card, and then synched to the mainframe intermittently. Users can even engage in person-to-person transactions by utilizing any terminal. Also, a transaction history is distributed throughout the network (via terminals and other smart card holders a user has transacted with) so a sophisticated audit trail is maintained for accuracy and security.

In 15 years of operations, there has never been a reported incidence of fraud, theft, or misplaced funds. Finally, the card can only be used by its owner with fingerprint authentication; it even has a “panic finger” feature that will disable the card if the pre-selected finger is presented for authentication. The benefits of this system are plentiful for consumers (increased security, convenience, lower cost, access to financial system, ability to build credit history), government (less costly, more efficient, more accurate, less fraud-prone), and merchants (lower cash handling costs, increased security, increased store traffic, revenue-sharing opportunities, more accurate bookkeeping).

Net1’s system is currently undergoing trials in Botswana, Iraq, Nigeria, Namibia, Colombia, and Vietnam. There are a wide range of potential applications beyond welfare payments: payroll, electronic bill payment, micro lending, burial insurance, and even health care records management. It may turn out that developing countries leapfrog industrialized nations in the deployment of secure smart-card systems for a wide range of financial applications!