Some of the simplest payment methods used by the South African consumer are Electronic Funds Transfers (EFTs) and debit orders. In 2016, the Payments Association of South Africa (PASA, now known as PIB) reported that in one month alone, South Africans made a total of 31 million EFTs and debit order transactions valued at R72 billion. Since then the market has been through turbulent times when it comes to debit orders in particular. Consumers have been targeted by fraudsters with scams such as the R99 scheme where a fraudulent call centre agency scammed victims out of R99 per month in a multi-year subscription, totalling stolen funds worth roughly R18 million. The way in which they were set up was that any debit order below R100 would not require a notification to the customer and therefore could go unnoticed indefinitely.
Challenges with fraudulent claims didn’t only apply to banking customers - consumers created a ‘scheme’, where they claimed valid debit orders were invalid. The rule at the time was whenever a customer disputes a payment, it must immediately be reversed, and only then could the bank perform an investigation into the claim. Not only was this a huge burden on the banks as it was difficult and time-consuming determining which claims were true and which were false, but it also complicated the collection process for businesses that then couldn't get the funds that were owed to them. The process also had a knock-on effect in delaying payment to businesses, putting strain on cash flow and profit margins.
Authenticated Early Debit Order (AEDO) and Non-Authenticated Early Debit Order (NAEDO) payments were the initial types of debit orders that existed and allowed for these gaps in the safety of the payment system. The problem with NAEDO arose due to the fact that no formal approval was needed before a debit order was put in place and the money was deducted from the customer’s account. This made it easy for fraudsters to target customers, but also made it tricky for banks as customers could claim that valid debit orders were fraudulent and there would be no way to prove otherwise.
Early 2018 saw a major rise in these NAEDO disputes as on average, 12.7% were disputed every month, compared with an average of 9.5% in November 2017. These numbers indicated that banks were dealing with 1.9 million disputes monthly, making up both valid and invalid queries. What was more concerning was that the numbers were showing a rapid rise. Had nothing been done to intervene, it would be scary to picture what the system would look like today. By August 2019, one year after DebiCheck was introduced, PASA reported a great success rate for the mandated-based payments as 75% of all debit orders were successful in comparison to the prior year of only 63.5%.
As a result of these debit order challenges, BankservAfrica tasked PASA to find a solution, and as a result, they created Authenticated Collections (AC) or the DebiCheck mandate.
DebiCheck is BankservAfrica’s scheme for processing debit orders through the use of mandate validation before a payment may be processed.
In layman's terms, this means that no entity can collect money from a bank account without pre-approval. As long as a valid mandate (requested by a particular payee entity) exists for a payer’s account, payments initiated from that payee can be processed normally against the payer’s account. If no valid mandate can be found, any payment initiated from the payee entity will be rejected without even attempting to authorise it against the payer’s account.
So why should you implement DebiCheck?
DebiCheck was created for the consumer's benefit and therefore should be prioritised when it comes to any bank's customer experience strategy. The fact that unlogged verbal mandates are no longer accepted and all funds that get deducted from customer accounts will have been verified by them means that they ultimately have full control over their funds. DebiCheck promotes consumer trust and ensures your customers have the best debit order experience ultimately resulting in a better brand reputation.
Control of funds is what it encourages and is made possible through the consumer defining the parameters. They can set out before the first payment is made: when money gets deducted, how regularly it happens, the date it occurs as well as the maximum payment amount. So when a debit order is pulled, not only is the validity of the payment checked but so is the criteria that has been specified. If any of the criteria does not match, the payment will not be approved and will not go through.
DebiCheck also improves collection rates for businesses as the level of disputes will likely decrease (as seen in 2018 post the implementation of DebiCheck) and in turn, debts won't need to be chased down. Thus, all banking customers - from individual consumers to businesses - benefit from the service.
Electrum’s DebiCheck solution offers both the processing of debit order mandates as well as DebiCheck transactions to help you keep your consumers protected. Contact us today to chat about our Payments offering.
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