Skip to main content

Banks must act on debit order fraud

| Research tools

Modern marketing theory over the past few decades has coined the phrase: ‘the customer is king’ - a concept that has somewhat been neglected by the retail banking sector.

This is according to widespread customer sentiment relating to increased levels of debit order fraud in South Africa. The main business activities of retail banking centre on providing an array of services to consumers such as storing funds, handling transfers and providing saving facilities as well as investment options.

This is a significant responsibility and one which can’t be taken lightly. Unfortunately, though, the cries of thousands of customers who have been victims of debit order fraud appear to be falling on deaf ears as fraudsters use loopholes in our banking procedures and regulations to exploit the public.

The banks have suggested that customers should be vigilant and scrutinise their bank accounts for unauthorised debit orders. Fair enough. However, this approach does not appear to be working, with many customers frustrated over the fact that nothing is done even after they alert their respective banks to these unauthorised debit orders.

The major concern for all parties affected is the simplicity with which bogus call centres can institute debit orders against individuals - thus bank security, and the fact that privacy of personal information is no longer protected, should be questioned.

In an article focusing on debit order fraud, a shocking revelation was made: the fact that it may be possible to purchase privileged confidential personal information belonging to unwitting individuals on the streets.

It turns out that this information is printed as a list and sold in batches of 500 at a cost of as low as R3 per unit. This information is obtained from legitimate establishments - in all likelihood illegally - and thereafter sold in the street market.

Much has been said about the soon-to-be introduced Twin Peaks regulatory framework for the financial sector in South Africa. Having attended a recent banking summit hosted by the Banking Association of South Africa, I can confirm that National Treasury, together with the South African Reserve Bank and other regulatory authorities, are adamant about introducing this system.

Apart from the obvious mandate of Twin Peaks promoting a stable financial sector, consumer protection is set to be bolstered. It has been noted that the structure of the Financial Services Board (FSB) will be extended to include a banking services market conduct regulator, which will among other things address issues surrounding customer protection within the retail banking sphere.

Regulators such as the FSB and the National Credit Regulator - as well as legislation like the Financial Services Ombud Schemes Act - have been in operation for a number of years. However, the effectiveness of these institutions to adequately protect consumers has come under scrutiny, particularly with recent fraudulent debit order schemes.

High and opaque fees

International reports have characterised South Africa’s financial sector as charging unnecessarily high and opaque fees. This is despite a banking sector considered one of the most sophisticated and developed in the world.

The new, favoured Twin Peaks regulatory approach aims to place greater emphasis on market conduct regulation and to achieve this, the FSB has relaunched the Treating Customers Fairly initiative, which will be implemented across our financial sector.

Part of the desired outcomes of this initiative is that consumers should not face unreasonable post-sale barriers imposed by financial institutions (banks in this case), whether it be for changing products, switching providers and submitting claims or complaints. The argument could be made that the banks have failed customers in this regard.

Sadly, the exasperations of affected customers have not been appropriately dealt with and the banking industry as a whole has yet to find concrete solutions.

Perhaps the proposed regulatory changes in our financial sector have come a little too late for the debit order fraud so rife at present. Customers continue to complain to their banks and other authorities wanting answers.

One thing is certain though, banks need to take the lead and evaluate measures that can counter the activities of these fraudsters because they are ultimately the custodians of consumers’ hard-earned money. Therefore, they cannot be absolved from the responsibility of protecting their consumers - the very ones they make money from.

On the other hand, some may argue that the notion of ‘better late than never' should prevail. Perhaps we ought to be pleased with the fact that six months from now, more stringent legislation will be placing greater emphasis and responsibility on the retail banking sector to fulfill customer protection standards.

* Dumile Sibindana is a columnist for Forbes Africa magazine and editor of Banker SA magazine. Opinions expressed are his own.

Pin It

Related Articles

More Pick n Pay smart shoppers switching points...

Pick n Pay Smart Shopper customers are increasingly spending their points on airtime and data, a popular loyalty reward exclusive for retailer Pick n Pay.

Mr D versus Checkers Sixty60, Woolies Dash, Ube...

By: Staff Writer - MyBroadBand Mr D Groceries has partnered with Pick n Pay stores across South Africa to give shoppers access to more than 27,000 food products at in-store prices – including drinks, meat, snacks, fresh produce, and more.

These are South Africa’s most popular loyalty p...

By: Lynette Dicey - BusinessLive Loyalty programme usage in South Africa has grown from 67% in 2015 to 76% in 2023/2024 across both gender and income categories, says the most recent “South African Loyalty Landscape Whitepaper” by Truth &...

New Research Finds 84% of South Africans Demand...

NSF study shows a significant shift towards ethical consumerism is underway in South Africa, with a majority of consumers calling for clear animal wellness transparency and compliance. 

Take heed of these new retail trends that emerg...

By Karen Keylock | National Retail Services Manager at Nedbank Commercial Banking South African consumers are under financial strain and, consequently, the way they shop has changed. And with further economic uncertainty expected in the coming ye...