The other debit order fraud – consumers reversing legitimate payments

It is currently very easy for consumers to reverse debit order payments and there are too many people abusing the system.

This is according to Enoch Malisa, chief operating officer at the Payments Association of South Africa (PASA).

There has been a tremendous rise in disputed debit orders during the second quarter of 2018, but 90% of the disputes are due to bank clients reversing debit orders they authorised, said Malisa.

PASA has found that when the economic situation in South Africa worsens, so the occurrence of consumers disputing legitimate debit orders increases.

This is bad for both the consumers and the national payment system.

It is bad for consumers, as it may result in the suspension of insurance coverage and other services linked to the debit order payment.

The large volume of legitimate debit orders that are disputed also puts pressure on the national payments system. It makes it more difficult for PASA to find and deal with rogue companies that perpetrate debit order fraud, too.

Malisa said that during Q2 2018, 12.7% of Non-Authenticated Early Debit Orders (NAEDO) were disputed on average every month.

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.

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

Making it more difficult to dispute debit orders

To address this, PASA is going to make it more difficult to dispute debit orders in South Africa.

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

PASA has tasked its senior legal counsel Charl Ackerman with developing a better system for disputing debit order fraud.

“The way it works right now, is that it is very easy to dispute debit orders,” said Ackerman.

“We’re working on a way to make that more robust, like with disputing card payments.”

Education is also part of PASA’s strategy to curb debit order dispute fraud. Ackerman said the association will run a campaign to educate consumers on how and when they should dispute debit orders.

In addition to clamping down on debit order dispute fraud, the changes will allow PASA to gather the information it needs to more effectively prosecute actual debit order fraud.

This will allow PASA to gather the data it needs to build a case against a suspected debit order fraudster by establishing a trend of behaviour.

Once PASA has built up a docket, it may then pass it to the South African Banking Risk Information Centre to take the prosecution forward.

Now read: Fines and “name and shame” list for debit order chancers in South Africa

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The other debit order fraud – consumers reversing legitimate payments