CAPE TOWN - Early debit order collections may soon be phased out and replaced by a new debit order authentication system, DebiCheck.
The traditional Authenticated Early Debit Order (AEDO) collections has long been victim to large-scale fraud.
It is reported that 36.6 million debit orders valued at R66 billion is processed each month.
According to the latest fourth quarter data by The Payments association of South Africa (Pasa), 1.6% of these monthly volumes are disputed and 9.7% of monthly volumes are unsuccessful.
DebiCheck, the world’s first debit order authentication system is currently piloted across 11 domestic banks.
This newly-found authentication system is said to completely replace AEDO’s and Non-Authenticated Early Debit Orders (NAEDO).
The roll out will ensure full compliance from companies. Companies that do not subscribe to the system will be cut off from collecting funds during the early payment window - usually after midnight when salaries hit consumer bank accounts.
These companies will then have to collect money during the day via normal EFT debit orders, says Pasa.
DebiCheck is set to launch in line with the South African Reserve Bank’s February 2019 deadline.
“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”, said, chief executive of Pasa, Walter Volker.
There are also disputes around NAEDO transactions which account for 14.8 million debit orders worth R11.5 billion.
Considering that NAEDO transactions are processed prior to the date agreed upon by service providers or users.
The current framework allows for consumers who fail to uphold debit order obligations to be migrated from AEDO transactions.
Volker says that around 90% of NAEDO disputes relate to cash flow management by consumers who struggle to meet their financial responsibilities.
The remaining complaints relate to unauthorised debit orders.
Volker warns of possible debit order scenarios. He says that it is possible that debit order files with banking could could be illegally obtained from employees at companies which are authorised to process legitimate debit orders.
Volker adds that Pasa investigates every disputed debit order.
The investigation involves sampling a database of paperwork or telephonic conversations. These are checked against certain criteria which stipulates what qualifies as legitimate consent and debit orders.
In the instance where an entity is found to be at fault, they are issued with penalties of R1 000 per debit order. For the year 2017, Pasa issued penalties worth R3 million.
Also, through its investigations, Pasa has taken down approximately 300 offenders over the past four to five years.
Banks have a responsibility to their customers to ensure legitimate and valid debit orders, says Ombudsman for Banking Services, Reana Steyn.
“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.
However, just last year, it was reported that the new authentication system for debit orders sanctioned by Pasa was supposed to have been implemented in 2016 already.
According to the manager of industry capacity development and communication at Pasa, Leticia Mentz, said Sarb decided on a “phased approach”. The deadline given for the project was January 31, 2019.
The Ombudsman for Banking Services, Clive Pillay, said that it is disappointing that the project has not yet been instituted.
It will afford customers “much-needed protection from unscrupulous operators”, said Pillay.
- BUSINESS REPORT ONLINE