In a world first, South African banks will soon start asking you, the customer, to verify new debit orders on your account to ensure that they are authentic.
The abuse of debit orders is rife and on the increase, with an “alarming” one million disputes lodged by customers every month, according to the Payments Association of South Africa (Pasa).
Part of the problem is the very nature of the debit order, which is an instruction or agreement between you and a supplier, to allow payment directly from your account. For this reason, you can’t instruct your bank to cancel an agreement to which it is not party. Such an instruction must be issued to the supplier, and it must come from you.
Issuing an instruction to a supplier may be easy. Getting the supplier to comply can be anything but. And it’s certainly not easy when the debit order is unauthorised and/or the supplier is an overseas company and you have no idea how it obtained your banking details, let alone the goods or services it has allegedly supplied to you.
Banks have never kept debit order mandates, and when customers complain about problem-atic or dubious debits, they are typically told to take it up with the company concerned.
You can dispute a debit order with your bank, but not before you have tried to resolve the dispute with the supplier that debited your account. Your bank can load a stop payment on your account, but this stays on the system for three to six months, depending on the bank, and there is nothing stopping that same company from using another name and/or another amount to dip into your account the following month or at a later date.
Debit order abuse also refers to when a company processes a debit order to a consumer’s bank account for the wrong amount or with an expired mandate – for example, when a gym contract has come to an end.
It’s not only rogue companies who are abusing the system. Consumers do it too. They ask their banks to reverse debit orders – claiming that the supplier has “no authority to debit” – knowing full well that a valid mandate is in place. They do this when they are short of cash. This obviously has an adverse impact on businesses.
To reduce debit order abuse, South African banks will, in future, authenticate debit order mandates with their customers and maintain a database of mandates to ensure that debit orders on your account are within the parameters that you agreed to. This is in terms of the Authenticated Collections Project, an initiative by Pasa.
Authentication will be phased in, starting with “early” debit orders (see “Types of debit orders”, below), of which there are about 15 million. The banks aim to authenticate all early debit order mandates by the end of September. And from October 1, all new early debit orders must be authenticated electronically.
The authentication and storing of debit order mandates by banks signifies “a massive shift of onus and responsibility”, Walter Volker, Pasa’s chief executive, says. “It gives the customer and the bank a warning of mandates lodged.”
Consumers will now know who is debiting their bank account, when they will debit it and how much will be debited, he says.
The project will go a long way to curbing illegitimate debit orders, complaints and, ultimately, fraud, Volker says.
In terms of the project, you will electronically confirm to your bank that you have an agreement with a company and the details of a specific debit order.
“Once you have authenticated your debit order, the bank will check the debit order payment instruction from the company/user against your authenticated mandate, to ensure that the debit is within the parameters you agreed to, prior to processing it.”
An electronic authentication might be achieved via SMS from your (the account holder’s) bank, which is then confirmed by you. Alternatively, authentication might be by way of you presenting your card and entering your PIN inside a store.
TYPES OF DEBIT ORDERS
Broadly speaking, there are two types of debit orders: normal debit orders and early debit orders. A normal debit order is processed in the late afternoon, whereas an early debit order is processed in the early morning (through what is known as the “early processing window”), Walter Volker, the chief executive of the Payments Association of South Africa (Pasa), says.
* An early debit order is an enhancement and variation of a normal debit order, having features such as “credit tracking” (when money goes into the account it triggers an early debit order transaction).
There are two types of early debit orders: authenticated and non-authenticated. The latter category is where most of the abuse occurs.
Every month, an “alarming” seven to eight percent of about 14 million non-authenticated early debit orders (naedos) are disputed, according to Pasa. That equates to about one million disputes a month.
Volker says this figure is way above the thresholds set by the industry to monitor efficiency in the system. The current threshold is 0.5 percent for disputes, indicating the need for action.
With a naedo, a mandate may be authenticated by means of a signature or a voice recording, whereas, with an authenticated early debit order (aedo) – which is for a fixed amount and for a fixed term, as in the case of a personal loan, for example – the mandate is authenticated at the time the agreement is concluded between the consumer and the supplier, and authentication is done using your bank card: you are required to swipe or insert your card in the service provider’s card terminal and enter your PIN. The mandate is then captured by the service provider and electronically authorised/authenticated by you.
The validity of aedos may not be disputed by you, unless you suspect fraud. Aedo fees are similar to or the same as debit card transaction fees, and there are generally no penalty fees for declined transactions.
Benefits for both you, the account holder, and the supplier include the absence of disputes and reversals. Aedos are more costly for the supplier because of the cost of using terminals.
There are currently only about one million aedos in use.
* Normal debit orders are by far the most common type of debit order in South Africa: 33 million of the 48 million-odd debit orders that are processed monthly are of this type.