Various role players within the payments collection industry expressed their need for a comprehensive payment solution that provides appropriate payment functionality to both bank and non-bank beneficiary in order to facilitate collection of debit orders. Some of the issues that gave rise to the above are:
- Unsuccessful collections - some customers withdraw cash from their bank accounts as soon as it becomes available, assuming that there debit order obligations have already been deducted. This leads to unsuccessful collections and unpaid transactions.
- Illegal practices - Some lenders pursued various avenues to overcome the above in order to protect their capital. These included card and PIN storage, preferential payment collection systems and sort at source arrangements. Access to preferential payments mechanisms was not available to all lenders due to varied risk profiles, with the result that certain classes of beneficiaries always had access to accountholder funds before others.
Under the auspices of the SARB a Collections Steering Committee was established. The aim was to establish a mutually acceptable payment solution for the collection of debits by both banks and non-banks in order to establish a level playing field.
To enable the collection of EDO payments, the NPS Act was amended on 26 May 2006, when the SARB Directive No. 2 of 2006 was published, which allowed for the phasing out of existing preferential practices by banks whereby certain debit orders were given preference when processed. The SARB Directive specifically allowed for EDO to be processed first, after “bulk credits” (e.g. salaries) had been posted to the account.
The AEDO and NAEDO payment systems were implemented in September 2006.
Both AEDO and NAEDO are processed as closely as possible with salary and wage credits to bank accounts, to minimise return debits (attracting unnecessary fees and causing inconvenience and unnecessary default on obligations).
Debits in AEDO and NAEDO (with a capped item limit of R15000 per transaction) are processed on a randomised, non-preferential basis, providing every User (including the customer’s own bank) with an equal and fair opportunity to recover payments due from the account. The solution expands access to the NPS (to more service providers and consumers), improves the effectiveness of debit order payments and reduces the incidence of returned debit orders and the associated fees and costs.
Users can further enhance their ability to collect successfully by utilising a “tracking service” offered by the paying bank. A NAEDO and AEDO payment instruction enhanced by a tracking service implies that the instruction can be processed from the mandated date over a selected tracking period. The instruction is then kept in the background and triggered whenever a credit is applied to the account.