Debit order fraud in South Africa is worse than we thought

The Payments Association of South Africa (PASA) has issued a report in which it found that the proportion of shady companies perpetrating debit order fraud was much higher than initially thought.

Decision-makers in the field had always maintained that the ration between rogue collections and individual debit order reversal was 10:90, PASA said.

In other words, it was believed that only 10% of all debit order fraud was due to rogue operators, while the other 90% was individual people reversing legitimate debit orders.

PASA has since found that the ratio between the two abuse types was closer to 40:60.

It was able to measure this statistic thanks to a 14-week proof of concept period to monitor debit order abuse in South Africa. PASA conducted the proof-of-concept with unnamed “mavericks” in the payments industry during the third quarter of 2018.

“During November 2018, the increased focus on debit order collection trends by users and sub-users accessing the National Payment System (NPS), revealed the presence of syndicated behaviour,” PASA said.

Following the study, PASA developed a system it calls the “Debit Order Abuse business capability”, which launched in March 2019. This system has:

  • Pre-screened 1,565 entities and related directors.
  • Prevented 99 entities from entering the National Payment System whose directors have direct links to debit order fraud cases.
  • Alerted sponsoring banks of 1,160 instances where additional enquiry into an entity and its directors was required to prevent or minimise risk to the National Payment System.
  • Confirmed that 293 entities were cleared to enter the National Payment System after screening for possible risk that and entity or its directors could pose to the National Payment System.

Debit order fraud in decline

As a result of the improvements put in place, PASA said that there has been a significant reduction in debit order fraud.

At the beginning of 2017, monthly debit order dispute volumes were increasing by about 200,000 every month. Disputes reached an all-time high of 2.3 million in December 2017.

In August 2019, there were 802,117 fewer disputes filed than in December 2018 and 1,044,567 fewer than in December 2017.

Successful debits also had an upward trend since its low point of 63.5% in December 2018. In August 2019, successful debits were at 75%.

“These trends are, in part, ascribed to the successful exit of 233 users from the National Payment System since February 2019,” PASA said.

In this context, “users” means companies that are authorised to register debit orders through the National Payment System (NPS). The total number of authorised debit order collectors in South Africa is around 20,000.

The total rand value of debits collected by rogue companies during the six months prior to their ejection from the NPS was R1,112,449,735 — R1.1 billion.

The total debit order disputes for these same rogue companies over the same period was R185,928,801 (R185 million).

“It remains essential to revolutionise and transform structurally flawed models of consumer education, risk mitigation and risk information sharing in the NPS,” PASA said.

“An absolute and unequivocal need exists for collaborative, ethical and socially just behaviour from every actor in the NPS, no matter their role, so as to ensure responsibility, accountability, fairness and transparency.”

PASA —Combatting Debit Order Abuse

The full report, titled “Expert Analysis – Combatting Debit Order Abuse”, is embedded below.

Now read: Why it’s so hard to convict debit order fraudsters in South Africa

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Debit order fraud in South Africa is worse than we thought