South African banks are reaping positive results after taking steps to curb fraudulent debit orders through the implementation of the first phase of the DebiCheck system.
DebiCheck is a communication system that allows customers to electronically check and approve any debit order collection before it is processed through their bank accounts.
This authentication system hasn't traditionally been used with the Authenticated Early Debit Order (AEDO) and Non-Authenticated Early Debit (NAED) debit order systems,supported by many banks.
The industry-wide initiative, set out by the South African Reserve Bank (SARB) and led by the Payments Association of South Africa (PASA), aims to crack down on unauthorised debit orders, sometimes referred to as “R99 debit order scams” which have been the subject of frustration among scores of banking consumers.
An investigation by the financial industry, the police and SARS found R1.6 billion is fraudulently debited from South Africans’ bank accounts every year.
On average, about 1.5 million of the 55 million monthly debit orders that go off across local banks are disputed by customers.
Billed as the first of its kind technology in the world by PASA, DebiCheck has been in development since 2013.
The pilot project was initiated on 1 August 2018, across 11 participating banks, including Absa, Bidvest, Capitec, First National Bank, Nedbank, Standard Bank and Ubank.
The system went fully live from 1 November 2019, with the banking industry reportedly investing a combined R4 billion in the project.
Cowyk Fox, managing executive for everyday banking at Absa Retail and Business Bank, says debit order abuse has become a major industry issue in SA, with no bank being immune to the crime.
“Some companies have acted in bad faith by processing invalid debit orders to consumer bank accounts, while some consumers have also avoided paying valid debit orders by unfairly disputing them with their banks, in order to manage cash flow.
“As a result, SARB and PASA have introduced DebiCheck as a viable solution. Absa has implemented the technology across vehicle and asset finance, personal loans and home loans. While users are still in the process of accepting DebiCheck as a new payment collection instrument, the results have been very positive.”
He points out that through DebiCheck, customers can be assured that when they authenticate a debit order, which they have signed up for and approved, they will know exactly how much will be debited, or what the maximum allowable debit amount is, against their accounts on a specified date.
Over the last few months, banks participated in a range of industry measures to combat debit order fraud, including the reversal of debit orders from identified fraudulent users, steps to investigate offenders leading to prosecution, and the implementation of strict governance around the acceptance of users and third-party payment providers.
Unique verification process
The debit order approval is done at the start of a new contract, or when information regarding debit order details has changed.
Once a new service provider or merchant creates a DebiCheck debit order on a customer’s account, the client will be sent a verification request on their cellphone, via SMS or mobile app.
Each DebiCheck processor is uniquely identified through an abbreviated short name, which will be linked to each debit order processed. This will print on the consumer's bank statement and make it easy to trace the origin of the debit order.
Some local organisations, from large enterprises to start-ups, are also in the process of implementing DebiCheck and introducing new business processes necessary to create an ecosystem of pre-electronically confirmed debit orders.
Johan Anderson, head of industry payments at Standard Bank, says the bank started piloting the technology in 2017, and has since been running consumer awareness campaigns on the service, which is expected to revolutionise payment processing in SA.
“DebiCheck is one of the biggest technology implementations in the South African payments ecosystem,” notesAnderson.
“For the first time in the history of payments processing, companies are expected to register digital mandates with the consumer’s bank. Given the scale of the change, industry participants have had to spend a lot of effort in the stabilisation and optimisation of systems. The number of companies on-boarded into the system continues to increase with debit order mandates in the hundreds of thousands across the various banks.”
Anton de Wet, chief client officer of retail and business banking at Nedbank, explains that in line with industry-agreed dates, Nedbank went fully live with this technology from 1 November.
“The system is very new and is currently being stabilised, with volumes being relatively low but growing steadily.This is very important technology for the banking industry. It is a key part of tackling the problem of debit order abuse, allowing customers to see future debits on their account and enabling better financial management. The technology also provides a foundation for future improvements to the payments environment.”
Old or pre-existing debit orders can also be authenticated and moved into DebiCheck, if a business chooses to contact all existing clients and request them to authenticate a new mandate, explains De Wet.
“It is important to note that banks are primarily enablers of the technology. They sponsor businesses who want to use this debit order type, and also register mandates and process DebiCheck instructions against their customers’ accounts.”
FNB says it is still in the pilot phase, on-boarding service providers and customers via its digital channels.
No guarantees
Craig Hills, business development director at identity authentication company WhoYou, explains that traditionally, with systems such as AEDO and NAEDO, banks have not had a full record of customers’ debit orders. This means they could not fully verify the information was correct before they processed a debit order.
“This situation resulted in numerous questionable service providers over-reaching with debit orders and taking money out of customers’ accounts without their permission.
“While DebiCheck is a step in the right direction to curb debit order fraud and will mitigate against this problem, it is not a guaranteed solution. It is a solution that enables collectors to authenticate mandates upfront in an effort to reduce unpaid debts and empower the individual to dispute any debit orders where there is no valid mandate.”
For DebiCheck to succeed, a combination of authentication measures could be added, including face-to-face communication with an agent via a branch, call centre, or using a biometric-based authentication process, such as a fingerprint scanner, to verify customers’ identity, according to Hills.
In a media statement, PASA explains that sometimes customers are guilty of illegally reversing debit orders. On average, about 1.5 million of the 55 million monthly debit orders are disputed – less than 3%.
“However, of the 1.5 million, only about 10% of the debit orders disputed by customers are actually unauthorised.This is a major problem for the industry. First, customers need to be aware it is illegal, not to mention unethical, to reverse a debit order they have authorised as payment for a legitimate legal contract or service.”
PASA says in addition to DebiCheck, it is working with the banks to improve the processes by which new companies are allowed into the debit order system and ensure rogue companies are identified and removed from the payment system.
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