Around 10 years ago, new payment systems were implemented to assist fair processing of payments from debtors to creditors via debit orders, but new developments are now underway for improved security.
These payment systems are known as Non-Authenticated Early Debit Orders (NAEDO) and Authenticated Early Debit Orders (AEDO). NAEDO and AEDO payment services process debit orders against the account holder’s current, certain savings and transmission accounts.
NAEDO payment services have been typically utilised by banks and ensure a debit order will be processed as per the instruction given by the account holder, on the mandated date. The NAEDO payment service enables the applicable instruction to be kept withinin the payment system in order for the debit order to be processed.
AEDO payment services allow an account holder to authorise future dated deductions from their bank account for payments such as insurance premiums, loan repayments etc, by swiping their bank card and entering their PIN number. The benefit provided by AEDO payment services is that the deduction is authenticated by the bank as soon as the account holder authorises the deduction, so the account holder cannot reject the deduction, providing certainty of payment to the service provider.
Both NAEDO and AEDO payment services are processed on dates selected by the account holder, minimising any return debits such as unnecessary banking fees or default on obligations and are uniquely identifiable by agreement reference of payment instructions and applicable payment cycle.
Increase in fraudulent debits
Both NAEDO and AEDO payment services provided peace of mind for the account holder, however, over the past few years there has been an increase in customer complaints due to unauthorised and fraudulent debits by unrecognisable collecting parties. Furthermore, NAEDO and AEDO payment services have contributed to unsuccessful collections and unpaid transactions, as some account holders withdrew cash from their bank accounts, prior to debit orders being processed.
With the debit order abuse continuing, the South African Reserve Bank (SARB) requested the Payments Association of South Africa (PASA) to create a new payment system platform, to cater for debit orders to be authorised legally and abusive account holders withdrawing cash, prior to debit orders being processed.
Authenticated Collections to the rescue
To ensure the account holder knows upfront when their account will be debited, PASA developed a new system called Authenticated Collections (AC). ACs will ensure all creditors will submit mandates to account holders. All mandates will be authenticated and registered with the account holder’s bank.
Authenticated Collections will ensure that all debit orders are firstly verified against a registered and authenticated mandate, before being processed against an account holder’s bank account.
In conjunction with Authenticated Collections, additional measurements will be enforced to eliminate fraud or unauthorised collections:
- Debit order without a mandate after a transaction is processed and disputed by the account holder will contribute to a penalty to be paid by the applicable creditor
- Early Debit Orders (EDO) will require electronic authentication, for example a One-time-Pin (OTP), prior to processing the payment instruction
- Registration of a unique, abbreviated short name (ASN)
- Organisations monitored and found in breach, will be subjected to a full audit
- Organisations processing debit orders without adequate mandates will be blocked from debit order systems
The end of minimal security payments
In conclusion, the SARB is aiming for implementation of ACs from 30 September 2016 and allowing approximately 2 years to complete the implementation. The impact is that NAEDO payments will be suspended, as it provides minimal security for the creditors and account holders alike.
Authenticated Collections will ensure all mandates received by the creditor from the account holder will be authenticated by the means of a card or electronic mechanism. This also adds value to the account holder as they will have upfront knowledge of debits being authorised and help track if any debit orders have been processed illegally.
- Image borrowed from accountingweekly.com