South Africa is currently the only country that has implemented an Early Debit Order (EDO) collection system. Our EDO system consists of both the AEDO (Authenticated Early Debit Order) and NAEDO (Non Authenticated Early Debit Order) payment streams and has been in use since 2006 to create a fair playing field for both businesses and consumers.
The AEDO system makes disputes virtually impossible, by providing authentication through an electronic mandate using card and pin technology.
On the other hand, the NAEDO system, uses paper-based or voice recorded mandates to authorise debit order transactions which have contributed to the vast amount of questionable debits being raised by customers and thus, a significant increase in the reversal or dispute of successful transactions.
Looking at recent statistics for all debits, 31 million transactions per month with a total value of over R72 billion per month are being processed. From these transactions, it is estimated that for EFT debit orders only 0.5% are disputed, and roughly 10% are unpaid due to a lack of funds.
The NAEDO system, however, has up to 6% of transactions disputed and around 30% unpaid due to a lack of funds.
To better protect both sides of the transaction, the South African Reserve Bank (SARB) has instructed the Payments Association of South Africa (PASA) to develop a new system to replace the Early Debit Orders (EDO). The new system is called Authenticated Collections (AC), which is where DebiCheck comes in. DebiCheck is the new type of AC debit order and aims to address these issues of debit order disputes and debit orders unpaid due to lack of funds, by introducing electronic consumer confirmation for all DebiCheck debit orders.
What is DebiCheck?
A DebiCheck debit order is one that a consumer confirms, electronically on a once-off basis (at the start of their contract). Its purpose is for consumers to confirm the details of the debit order with their bank before it is processed to their bank accounts. To electronically approve a debit order means that they confirm the details of their debit order on an electronic device such as a cellphone, bank app, personal computer, or perhaps an ATM. A consumer’s bank will let them know which options are available for them to use. It ensures that consumers are in control of and aware of debit orders being processed to their own bank accounts. Additionally, it provides your company with the comfort of knowing that your customers have acknowledged and are aware of these debits orders. It also allows consumers’ banks to record the debit order information and to check the information before they process the debit order to their accounts.
Do all businesses have to use DebiCheck?
All debit orders processed against a consumer’s bank account must have mandates, but may not necessarily be subject to DebiCheck confirmation. No debit orders can be processed to a bank account without a mandate. It is important to remember that all debit orders must have mandates. For DebiCheck debit orders, banks will now also have an electronic confirmation of consumers agreeing with the debit order information of each mandate.
Companies who use the debit order system choose whether they want to use DebiCheck, or not. If a company decides to use DebiCheck, consumers will receive an electronic request to confirm their debit order information. If not, consumers just need to give a mandate via a signed paper or telephonically approved (voice) recording. There are benefits to choosing to use the DebiCheck system, such as:
- You will be able to collect money in the ‘early window’ processing period,
- you will receive confirmation that mandates, already authorised by my customer, are being stored by their bank. You will experience fewer disputes tagged with ‘no authority to debit’, and
- there will now be a new facility that will not require face-to-face authentication, therefore improving flexibility.
It is a long-term goal for the South African Reserve Bank and the Payment Association of South Africa for all debit orders to be DebiCheck debit orders. But due to the number of debit orders and entities involved in these processes, this is being done in a phased approach.
From 1 February 2019, no newly loaded NAEDO’s will be allowed to be processed against the customer’s bank accounts. From 1 November 2019, no NAEDO’s at all will be allowed to be processed against the customer’s bank accounts.
Can Principa help my business set up DebiCheck?
We offer various solutions to help you on your way to DebiCheck. A Current State Assessment (CSA) will allow us to investigate the financial impact of switching from ADO to AC and create a roadmap to reach the target state. With Roadmap Business Advisory our consultants will provide roadmap mentoring to assist you in achieving the target state. And with our analytical solution, our data scientists will create a risk model for your business’s DebiCheck transition.
Get in touch with us if you need help on your way to DebiCheck debit orders.