What Was The Issue?

For years, the South African retail banking sector has been plagued by debit order fraud. Also known as R99 scams, they were typically debit orders of less than R100 that are billed monthly without the knowledge or consent of the account owner.

In the past, debit orders below R100 did not warrant a notification being sent to the victim and could therefore go unnoticed for months or years. Although these debit orders were reversible if detected, the sheer volume of fraudulent debit orders left South Africans deeply frustrated. However, the introduction of the DebiCheck system addresses this issue.

The DebiCheck Mandate and System Explained

DebiCheck’s full name is the AC/DebiCheck system. AC stands for Authenticated Collections system, which is a type of debit order that allows the user to confirm the details of a contract with their bank before the debit order is processed.

The AC/DebiCheck system replaced the old Early Debit Order (EDO) system. Under the EDO system, consumers provided a mandate to a company or other user to collect money from their account – a system that was vulnerable to widespread abuse and fraud.

Under the new AC/DebiCheck system, this mandate to withdraw funds from an individual’s account is now given to the bank (instead of a business). The bank is then responsible for releasing funds when a valid debit order is submitted by a company or individual.

Crucially, the new AC/DebiCheck system allows the consumer to personally approve the debit order with their bank before it is debited. Once it has received this individual validation, the bank confirms the exact details of a debit order and constantly checks that it adheres to the agreed-upon contract.

The South African Reserve Bank claims that the AC/DebiCheck system eliminates the potential for debit order fraud. When it was launched by the South African Reserve Bank on the 1st of May 2021 after more than six years of development and a price tag of over R5 billion, the AC/DebiCheck system became the first of its kind in the world.

The Financial Sector Conduct Authority – a regulator created by South Africa’s adoption of the Twin Peaks financial model – will promote future projects like the AC/DebiCheck system that are designed to facilitate better consumer outcomes.

What is the Twin Peaks Financial Model?

Adopted by South Africa in 2018, the Twin Peaks financial model has fundamentally changed the country's financial regulatory system by introducing two new regulators: the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA).

The Prudential Authority is charged with maintaining the stability of the financial system. To achieve this, Prudential regulation is applied to financial institutions such as banks, securities firms, and insurance companies to ensure that they are financially sound and capable of meeting their obligations to customers.

The FSCA, on the other hand, is responsible for market conduct and consumer protection. Having absorbed the Financial Services Board (FSB), the FSCA is tasked with market conduct regulation in all aspects of financial services, including banking, insurance, and advisory services. The FSCA will supervise how financial institutions conduct their business and treat customers, as well as take responsibility for significantly improving customer protection in the financial sector and driving better customer outcomes.

Fighting Financial Crime and Debit Order Fraud

Debit order fraud had become a serious issue in South Africa. According to a 2019 statement from the South African Banking Risk Information Centre (SABRIC), over 1.5 million debit orders were disputed per month, of which roughly 150’000 are genuinely fraudulent. Furthermore, A 2019 joint probe by SARS, the Hawks and the SAPS into the entire South African financial industry revealed that fraudulent debit orders were totalling at least R1.6 billion a year.

The issue of debit order fraud reflects South Africa’s pervasive issue of economic crime. Since 2009, the country’s incident rate has been, on average, 27 percentage points higher than the global average. In 2020, South Africa was tied with China for the country with the highest reported incident rate of economic crime.

Fraud Prevention Services – KYC Verification and Enhanced Due Diligence

Although the fight against financial crime is generally spearheaded by government agencies and regulators, the private sector also has a vital role to play in combating financial crime. Compliance with laws and regulations, coupled with proper risk management and enhanced due diligence procedures, hold the key to an economy in which transactional trust is the norm, not the privileged exception.

As South Africa’s leading provider of world-class due diligence and remote-onboarding solutions, ThisIsMe is proud to be at the forefront of a trust-based and privacy-compliant digital world. To experience our full suite of advanced due diligence services and see how we can help you streamline your regulatory compliance, book a demonstration by contacting our team here.