Debit order abuse costs consumers and banks in excess of R1.6bn annually
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CAPE TOWN – Debit order abuse has been a thorn in the side of the national payment system for years, costing consumers and banks in excess of R1.6 billion every year.
Last month, the authenticated collection system, DebiCheck, finally went live. It is spearheaded by the Payments Association of South Africa (Pasa) and the SA Reserve Bank.
But it will take a while before all rogue collections from consumer accounts are halted: DebiCheck applies to new debit order mandates. From next year November, all new debit orders will have to comply with the verification process and the old, non-DebiCheck debit orders will be terminated.
Once fully implemented, no debit order will be paid from a consumer’s account unless it is with their express, verified approval. It is hoped the system will stamp out rogue debit orders, which are processed without consent, and put a stop to consumers reversing or disputing valid debit orders whether due to cash flow management issues or for other reasons.
In the third quarter of 2018, an increased focus on debit order abuse led to a Pasa survey to determine how widespread abuse of the debit order system is.
Its recently released report, Combating Debit Order Abuse, Pasa said there had been a spike in illegal debits over the past two years. On average, about 1.5 million of the 55 million debit orders that go off every month are disputed by customers.
The debits included both authenticated early debit orders (Aedo) and non-authenticated early debit orders (Naedo). With Aedo debits, account holders have to mandate their future-dated debit orders by entering a PIN. These are not as easily disputed: the transaction is initiated with both the account holder’s card and PIN. With Naedo debits, account holders give the mandates for contracted future-dated early debit orders. DebiCheck will be replacing both Aedo and Naedo transactions.
Pasa says since February this year, it had “exited” 233 users from the national payment system: The total value of debits collected over six months up to February by these users was R1.1 billion. Only R185m was disputed by consumers, indicating they were unaware of the debits.
Craig Hills, the business development director at identity verification app WhoYou, said the DebiCheck system required banks to have clients’ correct details on-hand. That’s not always the case and electronic confirmations can happen in several ways, including face-to-face with an agent, via a branch or call centre, or digitally via a website or app.
“In order for DebiCheck to succeed, a combination of authentication measures is required,” he said.
WhoYou – which works on Android, iOS and Windows – allows conducts biometric verification via smartphone camera.
“We can ensure that customers experience the full protection of DebiCheck while also removing barriers to obtaining credible debit orders. This allows us to create a win-win situation for all with the new DebiCheck system – something which is critical to our security and our economy.