Every day existing retailers and new business ventures enter the E-commerce market in South Africa. While suppliers address delivery and logistical challenges, a major issue facing these suppliers is the array of choices they are faced with when it comes to payment methods. In this article we will discuss debit orders and the legalities related thereto.
A debit order is defined by the Payments Association of South Africa (“PASA”) as:
“A debit order is a facility whereby a third party can collect money from your bank account without you having to do anything other than giving such person a written, telephonic or electronic mandate to so.”
The processing and clearing of debit orders in South Africa is governed by the National Payments System Act 78 of 1998. This Act provides for the appointment of a national administrative body, namely PASA, by the Reserve Bank.
The constituent members of PASA are the major commercial banks of South Africa, which have agreed amongst themselves and with PASA on the clearing mechanisms which deal with debit orders.
This means that all debit orders, which are run through the banks, need to comply with the constituent members’ internal policies, which in turn are required to comply with the regulatory framework provided by PASA.
In short, there are two ways to approach the setting up of a debit order payment system:
- to use a 3rd party service provider – simple and easy to set up, but you will be charged commission on your transactions or, alternatively, a monthly administrative fee;
- to approach your bank to act as the ‘sponsoring bank’ – slightly more complicated to set up and may require consultation with your bank and legal representatives, but once established, your initial costs are quickly recouped and there is less continuing commission and / or administrative fees.
Using your own bank as a sponsoring bank involves its own complications, but the transaction fees are less. The first step is to contact your bank and enquire on its debit order facilities.
All banks are required by PASA to have a “Bank User Manual”, which sets out the terms and conditions relating to debit orders and corresponds to the clearance requirements as set out by PASA.
At minimum, a sponsoring bank will require the following information: third party’s name, account number, account type, branch code, debit amount (escalation; variable amounts and maximum limits), frequency of debit, action date, start and termination date.
Crucially, the bank will also require sufficient authority to debit the customer’s account. The bank’s PASA manual sets out the minimum standard of authority required and the bank may even provide you with specific requirements and clauses which must be included in the authorisation.
Most banks require specific authorisation, in writing from the customer. In terms of section 12 of the Electronic Communications and Transactions Act 25 of 2002, where written authorisation is required and said authorisation is provided in electronic form, the requirement is met.
Although telephonic authorisation is common, if required “in writing”, voice authorisation will usually be required to followed by written confirmation.
If the bank requires a signature, we refer you to section 13 of the Act, which deals with electronic signatures (or see our article on the subject by following the link: https://www.dingleymarshall.co.za/electronic-signatures-in-south-africa/).
In theory, there is nothing prohibiting telephonic debit order authorisation. However, this is only if the sponsoring bank also allows this. Usually the sponsoring bank will require written confirmation to follow the telephonic authorisation.
Should you require any further information on this subject or would like to engage our services in the drafting of your debit order authorisation and related documents, please feel free to contact the author or Andrew Marshall.