Electronic debit order authorisations are possible

Many merchants receive payment from their customers via debit order.  In South Africa (with its culture of late payment) it is a great way to receive payment from customers.  The level of non-payment and the costs of chasing payment are dramatically reduced.

Debit orders are useful because payment automatically gets taken from the customer’s bank account and an active step is not required by the customer each month.  In other words, if a customer has to actively pay a merchant each month, then each month the customer considers whether it is receiving value.

We often get asked questions around what form does the debit order authorisation need to take?  Must it be in “writing”? If so, must that “writing” be “physical writing” (i.e. pen and ink visible on paper) or will “electronic writing” (i.e. electronic bits and bytes visible on a screen) be legal in terms of our law?  If in (electronic) writing, can it be an electronic debit order authorisation or electronic mandate?  Must it be “signed“?  What form must the signature take?  Must it be a pen and ink manuscipt signature or can it be an electronic signature?  Can the authorisation be obtained verbally?  Over the phone for example?

The reason for the questions is simple.  Merchants want to reduce the barriers to making a sale – they want to make it as easy as possible for a customer to pay them money.  If a prospective customer has to print out a debit order form, completed it by hand, sign it, and then either fax it back to the vendor or scan it and then e-mail it back to the vendor, this acts as a barrier and inconveniences the prospective customer.  Merchants also want to reduce the admin burden.  An interesting observation is that many people use Fax 2 Email services now.  So, in both the fax and scan options, the debit order authorisation really ends up in electronic form anyway.

electronic debit order authorisations are legally possible

They seem like straightforward questions at first glance, but they are more complicated than it appears as none of the role players have a definitive or clear answer on the matter.   This is a complicated area of law and therefore the explanation is quite complex, but we have tried to make it as easy to understand as possible.  The concept of an electronic debit order is new to the market and as a result the majority (if not all) people believe that electronic debit orders are not permitted.  This is simply not true.  Electronic debit order authorisations are not prohibited by the law and are legally possible.  There are however various provisos and conditions that need to be complied with and met (many of which revolve around information to be provided by the merchant’s customer and steps to be taken by the merchant to ensure reliability).  Click here for a full discussion on how and why electronic debit orders authorisations are possible.

Unfortunately there is still quite a lot of uncertainty regarding their use. So, if you as a merchant want to start obtaining electronic debit order authorisations, the first place to start is with your sponsoring bank.  Before a merchant can use the debit order systems it firstly needs the approval of its sponsoring bank.  This approval

Tags: debit orders, electronic, Electronic Debit Order Authorisations