Fighting debit order fraud

A new debit order system will be made compulsory towards the end of the year, but will it make a difference in the fight against debit order fraud?

Fighting debit order fraudJust last month, organised crime syndicates operating on a massive scale ‒ duping banking customers by debiting sums off their bank accounts – were discovered by investigators. According to Fin24.com, a Hawks probe uncovered at least R1.6bn a year being illegally debited from bank accounts of ordinary South Africans.

But why does this fraud remain undetected by customers for so long? There are 55 million debit orders to the value of R80 billion processed by South Africa’s banks every month, and it seems that many people simply don’t keep track of their own debit orders or know which ones are coming off their accounts.

A poll conducted by Capitec Bank revealed that 20% of more than 1 000 respondents had no idea which debit orders went off their account each month. A further 11% were unsure whether they were aware of all the debit orders active on their account or not. Worryingly, three percent said they didn’t care to check.

Ignorance about DebiCheck

The survey also showed that the majority of respondents (72%) had not heard about DebiCheck, a new system which was introduced by the Payments Association of South Africa (PASA) to protect South Africans against debit order fraud.

In the past, fraudulent debit orders weren’t spotted because customers didn’t receive notifications about them, particularly those under R100. This saw the rise of the ‘R99 scam’, where fraudsters would debit amounts of R99 or less to stay under the R100 notification radar.

DebiCheck enables a banking customer to confirm a debit order once off at the beginning of a contract. It’s been introduced to prevent unauthorised debit orders from being submitted and deducted from accounts.

It was meant to be introduced last year but as the banks weren’t ready for an industry-wide roll out, the launch has been delayed to 1 November 2019. But that doesn’t mean that customers can’t currently dispute or cancel debit orders.

With FNB, for example, customers can stop, dispute or reverse unauthorised debit orders of less than R200 for free on the FNB App and online banking, as well as via cellphone banking for those who don’t have access to the internet or smartphones.

Keith McIvor, managing director of debt management software provider Intuitive, believes the launch will not be postponed again but emphasises the scale of the operation. “It is a massive, industry-wide project and has many complexities and costs attached to it. DebiCheck is necessary to level the playing fields for stakeholders and cut down on the negative behaviour that we are seeing in the world of debit orders currently.”

Will it make a difference?

Industry commentators say that DebiCheck will go some way into reducing the amount of debit order fraud. “DebiCheck puts clients in control of their money by notifying them when a request is initiated to load a debit order on their account. They can then approve or decline this request,” says Francois Viviers of Capitec Bank.

Clients do pay a nominal fee when it comes to implementing DebiCheck. With Capitec, for instance, it’s R1 to approve debit orders on the bank’s app. “There are no additional DebiCheck costs on the actual debit order fee,” says Viviers.

In spite of the introduction of DebiCheck, debit order fraud is still a significant problem in South Africa and the new notification system won’t be the answer to eradicating it completely. What’s more, the system itself gives consumers the opportunity to take advantage of the situation to avoid paying genuine contracts.

McIvor adds: “Debit order fraud is still a significant problem but is not only the illegal submission of debit order collection instructions via rogue debit order submitters. It is also the very high levels of debit order reversals by consumers who renege on valid, contractual commitments by reversing their debit orders. The impact on the businesses that collect their revenues via debit order is significant and very damaging.”

What about orders that have already been approved?

One area where DebiCheck currently falls short is that it doesn’t help in detecting current fraudulent debit orders. Capitec has revealed that it is currently migrating and converting current NAEDO (non-authenticated early debit orders) into the DebiCheck system.

But Viviers adds: “These debit orders will not require authentication as they are already loaded on the client’s account and can be viewed for free from our banking app.” It will then remain the customer’s responsibility to check all current and previous debit orders to make sure that they are genuine and cancel the ones that are not.

It will also be left to them to fight to get their money back from the offending parties, which may not even be possible as the fraudsters don’t often operate their accounts in South Africa and money, once debited, is often transferred out of the country and into another account swiftly.

How to avoid becoming a victim

Be aware of your active debit orders: If you’re not aware of what gets put into and goes out of your account, it will be hard to differentiate between a genuine debit order you set up and one that’s fraudulent. Ask your bank about how you can check your debit orders.

Check all your current debit orders: It’s important to look at all your debit orders and to check whether they are, in fact, legitimate. That should include even the smallest transactions. Capitec now notifies customers if a debit order of R30 or more has come off your account. But that may still not have stopped an order being processed for less.

Cancel with the service provider: If you want to cancel a debit order completely you have to do so with the original service provider too. For example, if you’ve arranged a debit order to come off from your gym then you have to cancel with the gym as well as your bank to make sure that money doesn’t come off your account.

This article first appeared in City Press.

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