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Many South Africans are not aware of the fact that debit orders are not only processed by banks. Organisations referred to as debit order bureaux are also authorised as participants of the National Payment System to process these transactions. This article explains the types of bureaux, their characteristics and considerations when deciding on implementing debit order collections.
There are two types of organisations (other than banks) who process debit orders and credits: System Operators and Third Party Payment Providers (TPPPs). System Operators are organisations that submit data to BankServ Africa (the national clearing house), where funds are collected directly into the client’s bank account. Let’s say the client is a security company. The security company will send the System Operator a file which is validated against software and converted into the correct format prior to submission to BankServ Africa. All the account holders in the file are debited and the client organisation is credited. The funds do not pass through the System Operator’s bank account. The System Operator is merely responsible for ensuring their infrastructure and systems are sound and that they do not introduce any risk into the National Payment System.
Companies that collect funds via a System Operator still need to have limits in place with their bank and need to ensure that they reconcile their unpaid transactions against their bank statement. Banks require surety or funds to be ceded, usually up to 100% of the monthly collection value. Exceptions exist where the company’s relationship with the bank is strong or where they have alternative surety in place. For some organisations, this outlay of capital and lack of access to the funds can be inconvenient.
By default, organisations collecting into their own bank account will have their own business name reflected first on the account holder’s bank statements when they are debited e.g. ACME 12345 where ACME is the business name and their customer’s account number with them is 12345.
Third Party Payment Providers
The second type of bureau is called a TPPP (Third Party Payments Provider). In this case, the provider collects funds into their own bank account on behalf of the client. Since there are many clients collecting into a single bank account, the TPPP must have strong reconciliation capability in order to report on each client’s collections and unpaids. Because the funds are collected into the bureau’s bank account, the bureau is responsible for the appropriate credit limits or cession of funds. No requirement for cession of funds can be highly convenient for businesses with tight cash flow needs.
Transacting with a TPPP is also useful for non-profit or small organisations such as residential road closures or communities since they usually do not have company registration numbers and associated formality in place as required by banks. Companies and individuals, however, are usually subject to credit checks on application for the service.
By default the bureau’s company name will be reflected first on the account holder’s bank statement. It is important to ensure that the TPPP displays the company’s name on the statement instead of their own. However, if there is an enquiry, the bank will still give the bureau’s contact details to the account holder. The bureau should have procedures in place to assist any account holder with enquiries and to assist them in tracking down the appropriate company.
Governance and Regulations
Both types of organisation are authorised by the Payments Association South Africa (www.pasa.org.za) to participate in the National Payment System and they are governed by the South African Reserve Bank (www.resbank.co.za) under the National Payments Act No. 78 of 1998 (Directives 1 and 2 of 2007).
There are some regulations around the nature of the transaction. For example, short term insurance premiums can only be collected by organisations in possession of an IGF (Intermediaries Guarantees Facility) as per the Short Term Insurance Act of 1998. It would be wise to ensure the regulations are well-understood prior to engaging with a bureau.
Pricing
A major consideration is pricing, particularly when collecting larger volumes. Great savings can be made by shopping around with System Operators and TPPPs. Pricing for a TPPP is simple: the transaction rate quoted will be all-inclusive in that the client would not incur any transactional fees on their own bank statement. Bureaux often charge a set-up fee, a monthly fee, debit order and unpaid charges. Sometimes file or batch fees are applied, depending on how many files are submitted during the month. Transactional fees for System Operators will typically be lower than TPPP pricing since the client will also incur bank charges on top of the System Operator pricing.
The process
The graphic below shows the process followed by a typical bureau.
1. The client submits a file to the bureau for processing
2. The file is validated.
3. Errors are sent to the client to rectify.
4. The validated file is sent to the bank or the clearing house for processing
5. Reporting is provided detailing the amount collected, any error conditions etc.
A benefit in transacting with either of the System Operator or TPPP is that service is often more personal than a bank. Many System Operators and TPPP’s will also provide customised reports for the organisation’s needs which can be difficult to obtain from a bank.
About the Author
Kathy Mann is the Managing Director of ACB Link (Pty) Ltd (www.acblink.co.za).
ACB Link is authorised by the Payments Association South Africa (PASA) as a Third Party Payments Provider and is governed by the South African Reserve Bank (SARB) under the National Payments Act No 78 of 1998. ACB Link is a subsidiary of the Insure Group Services (Pty) Ltd and an authorised FAIS representative of FSP 2882.
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