Early debit order collections may soon be a thing of the past, a result of the payments industry doubling-down efforts to combat debit order fraud.
DebiCheck, a world-first debit order authentication system currently being piloted across 11 domestic banks, is to completely replace Authenticated Early Debit Order (AEDO) and Non-Authenticated Early Debit Orders (NAEDO). As a result, companies that do not subscribe to the system will no longer be able to collect money during the early payment window – usually just after midnight when salaries hit consumer bank accounts – and will have to do so later in the day via normal EFT debit orders, the Payments Association of South Africa (Pasa) told Moneyweb.
DebiCheck, to be rolled out in line with the South African Reserve Bank’s February 2019 deadline, is expected to curb abuse by allowing banks, companies and consumers to verify and authenticate debit orders. “If someone wants to introduce a debit order instruction, they must contact the bank. The bank must then contact its client and inform them of the company name, the amount and time period of the [proposed] debit order and get their consent. The bank will then register this on a database and only when authenticated, will it be processed,” explained Walter Volker, chief executive of Pasa.
On average, 36.6 million debit orders – including normal and early collections – valued at R66 billion are processed each month, of which 1.6% of monthly volumes are disputed and 9.7% of monthly volumes are unsuccessful, latest fourth quarter data from Pasa shows.
All disputes centre around NAEDO transactions, which account for 14.8 million debit orders worth R11.5 billion. NAEDO transactions are processed prior to the date agreed upon by service providers or users and consumers. The current framework allows for consumers, who fail to uphold debit order obligations to be migrated from AEDO transactions at the discretion of users. Volker said that around 90% of NAEDO disputes relate to cashflow management by consumers struggling to meet their financial obligations.
Other complaints relate to unauthorised debit orders. A number of people took to social media over the festive season to complain about money being taken from their accounts by unauthorised debit orders and in some cases by entities that they had never heard of or shared their banking details with.
In such cases, Volker said it is possible that debit order files with banking details could have been illegally obtained from employees at companies authorised to process legitimate debit orders. Another possible scenario involves call centres, whereby agents sell items to consumers and obtain permission to collect funds via debit order – the catch: the items never materialise.
He said Pasa investigates every disputed debit order. In cases where it suspects that entities may be abusing the system, it requests a sample of their database and mandates – either paperwork or recorded telephonic conversations – which are checked against criteria used to define legitimate consent and debit orders. Should the entities be found to be at fault, they are issued with penalties of R1 000 per debit order, with Pasa issuing penalties to the value of R3 million in 2017.
He added that Pasa, through its investigations, has taken down roughly 300 rogue users over the past four to five years. It places company details on a debit order abuse list, which banks can review. It also lists the personal details of company directors and has recently begun engaging with Cipro to try to prevent bogus companies run by directors found to have been involved in debit order abuse from entering the system.
Social media complaints are by and large levelled against banks for failing to authenticate debit order instructions. Volker said that it is difficult for them to do so as they are usually not privy to agreements or contracts struck between consumers and companies and as the current system is highly manual, dependent on paperwork and voice calls.
Reana Steyn, Ombudsman for Banking Services, said banks do have a responsibility to ensure that debit order instructions are valid and implemented correctly. “Should the complainant raise any issues around these issues, the bank will have to revert to the original written instructions and verify the facts. A consumer must report the matter within 40 days, in which event the bank will immediately reverse the disputed debit order. Once the matter is investigated by the bank, the debit order will be deducted again, if found to be valid.
“If the consumer queries the debit order deduction more than 40 days after it was first debited to his/her account, the consumer may still apply to its bank to have it reversed. The bank will query the validity of the transaction with the service provider’s bank. The service provider’s bank will be given 30 days written notice to prove the authenticity or validity of the debit order. It will be cancelled if invalid and the funds will be manually returned to the customer’s account,” she said.