The New Way To Collect
South Africa is the only country in the world that has implemented the he Early Debit Order (EDO) collection system. The EDO system consists of both the AEDO and NAEDO payment streams and have been in existence since 2006 to ensure a fair playing field for all participants.
The AEDO system provides authentication through an electronic mandate using card and pin technology, making disputes virtually impossible.
The NAEDO system on the other hand uses paper based or voice recorded mandates to authorise debit order transactions.
This method of authorisation has contributed to the vast amount of questionable debits being raised by customers and thus a great increase in reversal (dispute) of successful transactions.
If we look at the current statistics for all debits, a total of 31 million transactions per month valued at over R72 billion per month are being processed. From these transactions it has been estimated that for EFT debit orders only 0.5% are disputed and around 10% are unpaid due to a lack of funds.
The NAEDO paints a different picture as up to 6% of transactions are being disputed and around 30% are unpaid due to a lack of funds, which is very worrisome to the industry.
To protect both the sides of the transaction the South African Reserve Bank has requested PASA to develop a new system called Authenticated Collections (AC) to replace Early Debit Orders (EDO).
This new system will give consumers upfront knowledge about their debits through an electronic authentication process, ensuring that debits will be authorised legally and rule out any cash flow management strategies from abusive consumers.
However, before the Authenticated Collections project was rolled out, PASA implemented the following measures to protect consumers against debit order abuse:
- The option by which consumers may reverse (dispute) any debit order appearing on their account with ease.
- Implementation of the Authenticated Early Debit Order (AEDO) system by which account holders authorised a repayment schedule by means of using the card & PIN option.
Although, PASA implemented the above measures, the abuse of the debit order systems continued.
Over the last year due to the abuse continuing, they have made a modernising effort to create a platform for future innovation, allowing participants to respond to regulatory markets and marketing needs.
Hence, the implementation of the Authenticated Collections system along with a few other measures including:
- Penalties for any debit order found to be without a mandate after the transaction has been disputed by a customer.
- Implementation of the extensive Authenticated Collections project where the goal is for all Early Debit Orders (EDO) to be subjected to electronic authentication (by means of an OTP or other technology) by the account holder prior to releasing the payment instructions.
- Registration of a unique abbreviated short name (ASN). Based on the short name, the successful, unsuccessful and dispute ratios will be monitored and any company found to be in breach may be subjected to a full audit.
- A debit order abuse list, containing companies that have been abusing the debit order systems. These companies will be put under review by PASA and if they are found to be submitting debit orders without adequate mandates they will be blocked from the debit order system altogether.
From the implementation of the Authenticated Collections system, the debit order industry will be given approximately 2 years to move over to Authenticated Collections.
It is expected that authentication options available to both users and customers will include electronic and card based options.
South Africa will most likely redeem themselves among the world leaders in payment solutions once this system has been rolled out.
Direct Debit will be one of the first companies to offer Authenticated Collections in South Africa, for more information please feel free to request a call.