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Pasa is designing a system to curb debit-order fraud

Banks will soon require prior specific debit-order mandates from customers, explains Pasa CEO Walter Volker.

 

NASTASSIA ARENDSE:  Over the last few years there has been a significant increase in debit orders processed to bank accounts without permission and, as a result, the South African Reserve Bank asked the Payments Association of South Africa, Pasa, to find a solution. That solution is a new type of debit order called DebiCheck.

I spoke to Walter Volker, the CEO of the Payments Association of South Africa.

WALTER VOLKER:  Yes, it’s been an ongoing problem, unfortunately from two sides. The one is there are users that are abusing the system – we call them rogue users – that introduce unauthorised or unmandated debit orders.

But at the same time, what’s making the statistical review of the prevalence of this difficult is that many consumers are abusing the system as well by disputing perfectly legitimate debit orders, just to get their money back. Generally these are consumers that are under pressure financially and this is an easy way to just get some cash flow going.

So the actual prevalence of fraud is difficult to determine. The number of disputes are in the region of 1.1 million disputes, in comparison to about 52 million transactions. So I’d say in the region of about 9% of the volumes are disputed.

NASTASSIA ARENDSE:  When it comes to these unauthorised debit orders, how does it work? Does someone sell off your banking details, or is it a card phishing thing? I’ve always been confused as to how a debit order goes through and it doesn’t raise an alarm at first?

WALTER VOLKER:  The modus operandi varies quite considerably. The worst is obviously when a rogue organisation gets hold of a debit order list – and they can steal it or buy it from virtually any company that generates debit orders for their company. It could range from a trade union to a normal insurance company or even a gym. People inside those organisations might sell them off. That’s probably an extreme form.

Another one is where a call centre just gets hold of a database and they start phoning people and promising them all kinds of wonderful products, and in that way get their bank details and authorisation to deduct funds from them. Then obviously they don’t deliver on the promise of the product.

The latter part is quite prevalent. There are quite a lot of these small call-centre operators that do that, and they create tremendous problems in the system as well.

NASTASSIA ARENDSE:  I’m guessing as a result of this huge problem, as you describe it, the South African Reserve Bank approached you guys as the Payments Association to find a solution. You have and it’s called DebiCheck. Tell me about it.

WALTER VOLKER:  I must say that we’ve been busy with measures over a long period of time to try and get rid of these rogues, and we have gotten rid of quite a lot of them. But the big project that we started more than three years ago already is called DebiCheck.

What it’s all about is ensuring that before a debit order comes off your account you would have been requested by your own bank to provide an electronic mandate. It could come in various forms, but the most obvious one is obviously being requested by your cellphone to authorise a debit by a particular merchant who has the authority to deduct from your account a specific amount, the frequency of those deductions, the date, etc. And once you’ve authorised it electronically your bank would then put it onto their mandates database.

And when a debit order comes through at the end of every month, if it doesn’t match the mandates database it wouldn’t go through at all. Obviously the benefit to the consumer is that at any stage you could go onto your account and check which debit orders have been authorised on your particular mandates database.

So that’s what we are busy building at the moment, and in fact we are in pilot mode as we speak.

NASTASSIA ARENDSE:  When do you think you’ll be satisfied with the performance of it at this stage, before we can actually go full scale and launch it all?

WALTER VOLKER:  Well, the plan is hopefully from about March onwards we can start ramping up. So at the moment we are testing it – not just technically but also the business processes, the consumer-friendliness of it, etc. So there are various aspects to test. And obviously it’s not just the banking system but any company that wants to generate debit orders has to be able to electronically interface with their particular bank. So it’s really a huge project.

The plan, if things go well, is to start ramping up from about February, March this year. Then this could continue ramping up until we’ve migrated towards February next year. And if the system is stable enough we would then switch off the beta system or any early debit order system at that stage. And then only DebiCheck transactions would be accepted for the early ones at that stage. At the moment we are not looking at normal debit orders but only at switching early debit orders, because that’s where the big problem is at the moment.

NASTASSIA ARENDSE:  So how do consumers get hold of DebiCheck? Is it an app I can download or is it something that is launched from my bank?

WALTER VOLKER:  Each bank will be slightly different but I think most banks would probably make available an app. But obviously it has to be prevalent enough that even a consumer or a bank customer with a normal feature phone would be able to participate. So even a normal USSB or an SMS capability on a cellphone would be able to authorise a DebiCheck. Obviously if you’ve got a smartphone an app would be even better, but we don’t want to exclude anybody. So the range of options for various consumers we have made as wide as possible.

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