A move to curb debit-order fraud

Unauthorised and fraudulent debit orders could soon come to an end, as banks move to crack down on fraud

The new debit order authentication system will allow banks to require prior specific debit-order mandates from customers. Payment Association of South Africa (Pasa) CEO Walter Volker says it started a DebiCheck more than three years ago.

DebiCheck, a world-first debit order authentication system currently being piloted across 11 domestic banks, will completely replace Authenticated Early Debit Order (AEDO) and Non-Authenticated Early Debit Orders (NAEDO).

Moneyweb reports that companies that do not subscribe to the system will no longer be able to collect money during the early payment window – usually just after midnight when salaries hit consumer bank accounts – and will have to do so later in the day through normal EFT debit orders.

Talking to SAFM presenter Nastassia Arendse, Volker says that DebiCheck will be rolled out in line with the South African Reserve Bank’s February 2019 deadline and is expected to stop abuse by allowing banks, companies and consumers to verify and authenticate debit orders.

READ MORE: Sharp rise in disputed debit orders

“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,” he explains.

He says the new system could come in various forms, but the most obvious one is being requested by a cellphone to authorise a debit by a particular merchant who has the authority to deduct a specific amount from your account , the frequency of those deductions and the date.

Volker adds that when a debit order won’t go through at all if it doesn’t match the mandate’s database.

“Obviously the benefit to the consumer is that at any stage you could go to your account and check which debit orders have been authorised on your particular mandates database. So that’s what we are busy building at the moment, and in fact, we are in the pilot mode as we speak, he says.

On average, 36,6 million debit orders valued at R66 billion are processed each month, of which 1,6% of monthly volumes are disputed and 9,7% of monthly volumes are unsuccessful, the latest fourth-quarter data from Pasa shows.

The data also reveals that all disputes centre around NAEDO transactions, which account for 14,8 million debit orders worth R11,5 billion. Volker says that around 90% of NAEDO disputes relate to cash flow management by consumers struggling to meet their financial obligations.

During the festive season, a number of people took to social media to complain about money being taken from their accounts by unauthorised debit orders and in some cases, by entities they never heard of or shared their banking details with.

Volker says in those cases, it is possible that debit order files with banking details could have been illegally obtained from employees at companies authorised to process legitimate debit orders. Another possible scenario involves call centres, where agents sell items to consumers and obtain permission to collect funds via debit order – the catch: the items never materialise.

READ MORE: Your R99 debit order scam woes could soon be over

Ombudsman for Banking Services Reana Steyn told Moneyweb that banks have a responsibility to ensure that debit order instructions are valid and implemented correctly.

“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,” Steyn was quoted as saying.

Additional source: Moneyweb