What does DebiCheck mean for SA businesses
TransUnion reports that consumer credit extension in South Africa is currently around R1.8 trillion, with approximately 9% of this debt at least three months in arrears.
In addition, around 45% of the approximately 22.5 million credit-active consumers have impaired credit records. This is a major obstacle to collections activities as it becomes increasingly difficult for credit providers to collect payments as the level of debt rises, with many collectors across multiple industries trying to solicit payments from the same consumers.
“Business needs to think about these realities when preparing for the launch of DebiCheck,” states Andrew Springate, CEO of PAYM8, a financial gateway services company for payments, collections and mobile commerce.
From 1 November 2019, South Africa became the first country in the world to implement a debit order system that requires banks to request electronic authorisation, directly from their clients.
It’s called DebiCheck and it was instituted by the South African Reserve Bank and Payments Association South Africa (PASA), in response to an increase in fraudulent debit orders, while also protecting merchants and credit providers from a spike in disputed debit orders.
There is a lot of information being released about DebiCheck, most of it confusing. “I’m not sure debit order dependent companies have fully understood the implications,” warns Springate.
“The change will have a profound impact on any business that currently uses Non-Authenticated Early Debit Orders (NAEDO), and to a lesser degree those who use Authenticated Early Debit Orders. Both these debit orders sit under the EDO (early debit order stream). The EDO system will be replaced by DebiCheck,” Springate explains.
Many South African companies are highly reliant on debit orders as a payment channel and in a weak economy, no company can afford to put their payment processes at risk. Payments Association of South Africa (PASA) states that 48 million debit orders are processed monthly across all industries, totaling approximately R80 billion in revenue.
“Without the DebiCheck system, your company will have to use an EFT based debit order for all new client debit order payments”, says Springate, “This will mean you can no longer take advantage of the ‘early window’ and your debit orders will no longer be processed in the early morning but rather late in the evening. This will put your debit orders at the back of the payment queue. It will have the biggest effect on companies, like debt collectors, credit providers and many others, who rely on being able to ‘strike first’ when a customer’s salary hits their bank account. Currently EDO’s allow companies to track a customer’s account for up to 32 days for available funds. This benefit will also no longer be available to you without an approved DebiCheck.”
Springate also cautions businesses to think about how DebiCheck will affect their sales processes. “DebiCheck will add a new step to your current sales process. Before any sale or contract can be deemed final, your sales representatives will have to wait for confirmation of the payers authorisation of the mandate. The decision to accept or reject a DebiCheck lies with the consumer. It is sent by their bank, via an electronic platform. No bank will proceed with a debit order until they have received positive confirmation from your customer via DebiCheck.” But, Springate adds that the positive change coming from this new regulation is that disputes will be almost impossible. “As long as you process the debit order exactly in line with the date and value loaded when the mandate was created and the payment matches the authorisation given to the bank, the payer will not be able to dispute or reverse a payment.”
Time is running out if your business relies heavily on the NAEDO early window – no new NAEDO’s will be processed from 1 May 2020, and, from 1 November 2020, DebiCheck will be the only early window debit. “There is a lot to think about,” explains Springate, “There are many variables that could derail your current payment system and affect your monthly cash flow and collection targets. It’s not a process that can be done in a rush and as time runs out for companies reliant on the early window and account tracking, you are going to need to make some strategic decisions”.
As the TransUnion figures show a low-growth economy is pushing more and more South Africans into a fiscal struggle, with more and more unable to pay their monthly bills. “If you need to be at the front of the payment queue,” states Springate, “you need to get on top of DebiCheck. It’s a risk many businesses haven’t seen coming”.