In our previous article, we spoke about the various ways in which debit orders can fail. However, there is light at the end of the debit order tunnel in the form of a technology that permits account-holders to authorise debit orders ahead of time.
Vaughn Hechter, Client Services Head at NuPay, says the technology is aimed specifically at debit orders against individuals’ accounts, as opposed to business accounts.
“Collections from consumer accounts are considered more high risk than those from business accounts.”
He goes on to explain that debit orders in the EFT debit stream can still be presented to business accounts.These debit types, however, have a disadvantage. "Currently, only negative reporting is available on debit order transactions presented against the account. The transaction is presented and you get a report to say that you’ve uploaded a transaction. There’s no report to say whether it’s been successful. The system only reports on failure of any kind, such as insufficient funds, frozen accounts, reversed or disputed debit orders.”
It can take days for the negative responses to arrive, impacting the business’s cashflow. Hechter clarifies: “The bank has already paid the business the funds but then reverses money against its account down the line. In addition, there’s currently no tracking on regular EFT debit orders, so when pay dates are moved because of weekends or public holidays, regular debit orders may only go off several days later and by then, there may no longer be sufficient funds in the account.
Hechter says that as of 1 May this year, authenticated debit order transactions will be created through the new system DebiCheck. By 1 November 2021, Early Debit Orders (EDO) created against consumers’ accounts prior to 1 May must be migrated to the new system.
“The new system allows you to monitor when sufficient funds land in the account and then debit them and pay the business what it’s due. Another big positive about the new system is that debit orders can only be reversed when the transaction is processed outside of the rules of the system – when you change either the amount or date of the debit. Then it becomes reversible. Currently, all EFT and NAEDO debit orders against consumers’ accounts can be reversed.”
He says there were two key drivers for the development of this new debit order technology: “Essentially it came down to non-reversibility and debit order reviews. A commission was established to look into the high rates of debit order disputes and the outcome was that there was a component of rogue users debiting consumers’ accounts, but the majority of disputes was owing to cash flow management by consumers.”
The Payments Association of South Africa (PASA) wanted a system that wouldn’t allow rogue businesses to debit anyone’s account. Secondly, it wanted consumers to be unable to randomly dispute or reverse transactions for cash flow management purposes.
“However, legislation requires that consumers are able to reverse certain transactions to protect consumers against activities such as fraud or reckless lending, therefore certain transactions will remain reversible to protect consumer rights.”
Hechter explains how the technology works: “There are two approaches that one can adopt. In the first method, the transaction details are uploaded into a portal and then pass through a platform (such as the one we’re discussing in this article) before being presented to the consumer’s bank. The bank will contact the consumer and share details of the transaction, such as date of the debit order, amount, frequency, and name of creditor, then the consumer must go and authenticate it. The notification is done via SMS to the consumer’s mobile phone number as a transaction-pending authorisation. The account-holder can then log onto their secure banking channel, go to an ATM or go into a branch to approve the transaction.
“When the consumer logs onto their banking app or an ATM they’ll see a notification to authenticate transactions and a list of the institutions that requested a transaction against their account. The user provides an ATM PIN, a username and password or their ID book at the bank, they must identify themselves prior to being able to approve the transaction, making this a secure process.”
The biggest challenge faced in adopting this platform is having the right contact details for the consumer at their bank. “All too often the mobile phone number that the bank has for its customers isn’t correct. In South Africa especially, people change their numbers often, or share phones with family members, so the contact details registered with the bank don’t match reality.”
However, this challenge can be countered by using an alternative approach to loading a transaction on the platform, whereby the consumer authorises the debit order at the same time that the transaction details are loaded by the credit provider, using their bank card and PIN number on a handheld terminal similar to that used in a grocery store.
“They basically pre-authenticate at the same time that they agree to the transaction,” explains Hechter.
He highlights that it has to be the bank that does the authentication of its customer; this can’t be done by the retailer or person offering credit to that person. “The benefits of this type of approach to debit orders are manifold. For the user it means that only authorised transactions that they have approved can be processed against their accounts. The financial institution will know that its account-holder has authorised the transaction, reducing the need for policing around debit order reviews and fraud. This could save the economy millions in fraud owing to the authentication of all transactions.
“Finally, if the transaction is processed within the rules, the debit order can’t be reversed, benefiting the creditor who requests the transaction and ensuring that the consumers don’t fall behind on their payment obligations. If all debiting institutions conducted proper affordability for the credit extended to the consumer, there should be no reason for the debit order to be unsuccessful, save for reckless credit grantors abusing the system in conjunction with account-holders.”
Should the end-user refuse to approve the transaction, such as that from a debt collector, then there’s no authenticated transaction. In such an instance the transaction can be converted into a Registered Mandate Service (RMS) transaction, but there is the risk of it being reversed.
Consumers need to be relatively tech-savvy. They also need to be aware of the timelines associated with authentication. Failure to authorise debit orders within the time frames can result in the debit order mandate request failing. Processing these transactions in RMS means it can be reversed. “Consumer education is key to the success of the deployment of this type of technology."
