TransUnion reports that consumer credit extension in South Africa is currently around R1.8 trillion, with approximately 9% of this debt at least three months in arrears. In addition, around 45% of the approximately 22.5 million credit-active consumers have impaired credit records.
This is a major obstacle to collections activities as it becomes increasingly difficult for credit providers to collect payments as the level of debt rises, with many collectors across multiple industries trying to solicit payments from the same consumers. Business needs to think about these realities when preparing for the launch of DebiCheck.
South African first
From 1 November 2019, South Africa became the first country in the world to implement a debit order system that requires banks to request electronic authorisation, directly from their clients. It’s called DebiCheck and it was instituted by the South African Reserve Bank and Payments Association South Africa (PASA), in response to an increase in fraudulent debit orders, while also protecting merchants and credit providers from a spike in disputed debit orders.
There is a lot of information being released about DebiCheck, most of it confusing and I’m not sure debit order dependent companies have fully understood the implications.
The change will have a profound impact on any business that currently uses Non-Authenticated Early Debit Orders (NAEDO), and to a lesser degree those who use Authenticated Early Debit Orders. Both these debit orders sit under the EDO (early debit order stream). The EDO system will be replaced by DebiCheck.
Many South African companies are highly reliant on debit orders as a payment channel and in a weak economy, no company can afford to put their payment processes at risk. Payments Association of South Africa (PASA) states that 48 million debit orders are processed monthly across all industries, totaling approximately R80 billion in revenue.
Without the DebiCheck system, your company will have to use an EFT based debit order for all new client debit order payments. This will mean you can no longer take advantage of the ‘early window’ and your debit orders will no longer be processed in the early morning, but rather late in the evening. This will put your debit orders at the back of the payment queue. It will have the biggest effect on companies, like debt collectors, credit providers and many others, who rely on being able to ‘strike first’ when a customer’s salary hits their bank account.
Currently EDO’s allow companies to track a customer’s account for up to 32 days for available funds. This benefit will also no longer be available to you without an approved DebiCheck.
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Read the full article by Andrew Springate, CEO, PAYM8, as well as a host of other topical management articles written by professionals, consultants and academics in the April/May 2020 edition of BusinessBrief.
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