The payments industry has been experiencing a noticeable increase in debit order abuse and while a number of initiatives have been pursued to address this, this year will mark the biggest and most significant one – the Authenticated Collections Project.
Primarily targeting debit order abuse, the project aims to address much more. It is believed that it will enhance the safety and efficiency of the system in a substantial way by reducing the number of unauthorised debit orders being processed by companies, as well as consumer disputes being processed with “no authority to debit”.
Walter Volker, the CEO of The Payments Association of South Africa (PASA), says: “Debit order abuse not only has a significant impact on consumers, but also on the efficiency of the payment system. There are many scenarios where a company processes debit orders to a consumer’s bank account without a proper or valid mandate, no mandate or with an expired one. In other instances, consumers request their banks to return debit orders which have already been paid even when a valid mandate is in place.”
According to PASA, currently 33-million “normal” debit orders to the value of R61-billion are processed each month in South Africa. Additionally, 14-million non-authenticated early debit orders (NAEDO) and 1-million authenticated early debit order (AEDO) transactions are processed in the early processing window.
Current disputes for debit orders are reported at 0.5% while that of NAEDO is at a more alarming 7% to 8%. In addition, 18% of NAEDO transactions are unpaid due to a lack of funds.
Says Volker: “These figures are way above the thresholds set by the industry to monitor the efficiency in the system. The current thresholds are 0,5% for disputes and 10% for unpaids, respectively – indicative of the need for action to curb this.”
Authenticated Collections is the process whereby consumers will electronically confirm to their bank that you are in the process of doing business with a company/user and that you agree to the details of the specific debit order.
Once the user has authenticated a debit order, the bank will check the debit order payment instruction from the company/user against your authenticated mandate to ensure that the debit is within the parameters you agreed to, prior to processing. At this stage, this process will only be implemented for early debit orders, and not for normal debit orders. This means that from a certain date, only authenticated debit orders will be processed in the early processing window and all other debit order later in the day. The Authenticated Collections project introduces new criteria for collecting money in the early processing window.
“Authenticating all early debit orders is a means to protect consumers from unscrupulous companies who attempt to debit consumers’ bank accounts without their permission,” says Volker. “As a result, consumers will know who is debiting their bank account, when they will debit and how much will be debited. At the same time, this new system will also protect companies in that authenticated mandates will not be easily disputable by consumers.”