Debit order collections

Debit order

A debit order is a means of payment that allows a third party to collect funds from a customer's bank account on a once-off or recurring basis. The instruction to collect has to be mandated, i.e. the customer has to give permission for funds to be collected. It is typically used to collect monthly subscriptions, premiums, or repayments, and also investments, donations or other fees.

Banks, SOs and TPPPs charge fees to the creditor for every debit order.

Mandate

A debit order mandate is a record of a customer's authorisation to have a third party collect funds from their bank account (or credit card) on a once-off or recurring basis. Mandates can be recorded in writing, by voice or electronically in various standard formats.

Debit order disputes

Debit order agreements can only be cancelled by the third party (creditor) or the customer (debtor) – not the bank. Consumers can dispute a debit order if they deem it to be unauthorised. Banks offer customers the services to reverse and/or stop debit orders at any time, but may require specific information to do so.

Debit order instruments

There are three main debit order instruments, namely EFT debit orders, Early Debit Orders (EDO) and DebiCheck. Each instrument has specific attributes and restrictions. The successful blending of the various instruments and use of their properties is essential to any billing strategy.

EFT debit order

EFT (Electronic Funds Transfer) debit orders are the most common type of debit order in South Africa. They are processed later in the day, typically after normal business hours, and do not offer tracking. If an EFT debit order is unsuccessful due to lack of funds for two consecutive mandated action dates, the third party must cancel the debit order.

Early Debit Order (EDO)

Early Debit Orders (EDOs) are processed in the early window, i.e. immediately after a salary is paid into the debtor's bank account. Early window collections like EDOs precede EFT debit orders and are therefore able to collect from the debtor's account first.

EDOs offer tracking, meaning the account is monitored for a specified amount of days if initial collection failed due to insufficient funds. The EDO will process when an amount equal to or more than the amount to be collected is available in the account.

There are two types of EDO, namely:

  • AEDO (Authenticated Early Debit Order)

  • NAEDO (Non-Authenticated Early Debit Order)

Authenticated Early Debit Order (AEDO)

Authenticated Early Debit Orders (AEDOs) refer to debit orders that have been authenticated by the customer with their bank card and PIN at a point-of-sale (POS) terminal. AEDOs may only be disputed by the customer in the case of alleged fraud.

Non-Authenticated Early Debit Order (NAEDO)

Non-Authenticated Early Debit Orders (NAEDOs) refer to any Early Debit Orders (EDOs) that have not been authenticated in person with a card and PIN. NAEDOs are processed before EFT debit orders and the customer's bank account can be tracked for a number of days, ensuring higher collection success rates.

DebiCheck

Debit order disputes have significantly increased over the past few years, often due to unauthorised debit orders being processed to debtor's bank accounts, or consumers that avoid payment by disputing valid debit orders with their banks. The banking industry has since tried to address this issue by introducing a specific type of debit order called DebiCheck. Whilst maintaining the key attributes of EDOs, DebiCheck has enabled debtors to approve their debit order details electronically and consequently prevent fraudulent debit orders from being processed.

How does DebiCheck work?

Transaction types (TT1, TT2, TT3)

Transaction types are DebiCheck authentication services that can be used to authenticate a debtor, i.e. asking a debtor to approve a debit order request. The authentication process lasts for a limited period of time only and will result in a timeout if the debtor doesn't respond in time. The transaction types below have the following timeout periods:

  • TT1 is real-time (USSD, 120-second time-out period)

  • TT2 is delayed (notification, 48-hour time-out period)

  • TT3 is card present

The table below summarises the various transaction types along with their corresponding authentication process.

Instrument

Type

ServiceType

AuthType

Process

Result

Response

Description

DebiCheck

TT1

a

RSTT1

Web service

USSD

120s

Matching phone numbers

DebiCheck

TT1

a

RDTT1

Web service

USSD

120s

Not matching phone numbers

DebiCheck

TT1

b

RSTT1

Web service

Notification

48 hours

Delayed – matching phone numbers

DebiCheck

TT1

b

RDTT1

Web service

Notification

48 hours

Delayed – not matching phone numbers

DebiCheck

TT2

TT2

TT2

Batch

Notification

48 hours

48-hour expiry

DebiCheck

TT2

NM

NM

Batch

Notification

N/A

NAEDO migration

DebiCheck

TT2

RMS

RMS

Batch

Notification

N/A

Registered Mandate Service

DebiCheck

TT3

TT3

TT3

Card present

Card present

120s

Card chip and PIN

Stop order

A stop order is an agreement between a consumer and their bank to make a series of future-dated repeat payments on their behalf. The consumer can instruct the bank to cancel the stop order at any time. Stop orders are not the same as debit orders. With stop orders the consumer initiates payments to another party by instructing their bank, whereas debit orders allow third parties to collect payments from a consumer's bank account.

Account Verification Service Real-time (AVSR)

Account Verification Service Real-time (AVSR) refers to the process of electronically verifying the details of a specific bank account. This helps to ensure that the account is active and valid before a payment is processed for the delivery of services or goods.

Issuing bank

The issuing bank (or issuer) is responsible for transferring money from the customer's (debtor) bank account into the merchant's (creditor) bank account. The issuing bank is liable for purchases made by the debtor if the debtor does not pay.

Acquiring bank

The acquiring bank (or acquirer) is responsible for accepting money from a debtor's bank account. The acquiring bank is liable for charges made by the merchant if it does not provide goods or services purchased.

Clearing bank

A clearing bank is a bank that participates in the payments clearing system to finalise financial transactions.