Huge growth in debit order disputes in South Africa

There has been a significant increase in the number of debit orders that South Africans dispute, Payments Association of South Africa (PASA) chief operating officer Enoch Malisa has stated.

Malisa was addressing media at an event at the PASA offices in Johannesburg.

During Q2 2018, 12.7% of Non-Authenticated Early Debit Orders (NAEDO) were disputed on average every month. This is up from the 9.5% average monthly dispute rate in November 2017.

The average volume of NAEDO payments per month during Q2 2018 was 14.7 million, which means that banks dealt with nearly 1.9 million disputes per month.

In November 2017, the number of disputed NAEDO payments was around 1.4 million.

“The high NAEDO dispute rate worries us,” said Malisa. He said that if they look forward five years and at the possibility the dispute rate growing to 60%, the whole system would collapse.

To prevent this, PASA has to deal with two bad actors in the debit order system:

  1. Rogue companies who exploit the system to put through unauthorised debit orders.
  2. Consumers who dispute legitimate debit orders, either when money is tight or for other reasons.

Unethical clients are a major problem

Malisa said that 90% of disputes on NAEDO and EFT debit orders are not because of rogue companies, but customers disputing debit orders they authorised.

“Our goal is to run reliable payment systems and not have a runaway train of customers disputing legitimate debit orders,” he said.

Part of the problem is that these fraudulent disputes make it difficult for PASA to trace the actual rogue companies who have stolen money.

As a first step to deal with unethical debit order disputers and rogue companies, PASA has built a system called DebiCheck.

DebiCheck will ultimately replace the authorised and non-authorised early debit order systems, requiring users to electronically confirm new debit orders.

Payments that go off in the late payment window will not require DebiCheck authorisation, but PASA said it has launched an enforcement project to help deal with rogue companies more decisively.

PASA said its target date for putting DebiCheck into production with all of South Africa’s banks is 31 July 2018. It expects to resolve any teething problems during August, but by the end of August it expects the system to be completely stable.

The deadline for full migration onto DebiCheck is set for October 2019, when the existing AEDO and NAEDO systems will be switched off.

Debit order volumes and disputes

The latest statistics from PASA regarding debit order and dispute volumes is summarised in the table below.

Monthly Debit Orders in SA
Payment Type AEDO NAEDO EFT Debit Orders
Volumes 1.9 million 14.7 million 38 million
Values R1.9 billion R12.8 billion R68 billion
Unsuccessful 17.7% monthly volume 22.5% monthly volume 11.8% monthly volume
Disputes Not disputable 12.7% monthly volume 1.8% monthly volume

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Huge growth in debit order disputes in South Africa