Optimise collections with TT3 mandates

In 2023, over 600 million debit orders were processed in South Africa with industries like insurance, finance, health, education, real estate, lending, retail accounts, telecommunications and more depending on them to collect payments for ongoing services. 

Efficient collections are essential to ensure no revenue is missed, and their success can be affected by the details of the initial mandate. How can businesses ensure their mandates are signed, authorized and collected efficiently? 

Back to basics – EFT debit order mandates

EFT debit orders are South Africa’s foundational and legacy way of collecting debit orders. Traditionally, after signing a contract, the customer (debtor) provides the service provider (creditor) with the approval to collect funds from their account. This approval is referred to as a mandate to process debit order collections against the debtor’s account – and it can take the form of an electronic document, a voice-recorded agreement or even a physical signature. 

In South Africa, mandates for EFT debit orders are kept by the creditor. Unlike UK BACS Direct Debit, the banks do not have a record of the mandate on file. When the debit order instruction is received by the debtor’s bank, it is processed with no further action. For debtors, this is an issue if a collection was made without authorisation. 

On the other hand, customers can cancel or dispute debit orders should they see fit, often resulting in a failed collection. When a collection is disputed, the debtor’s bank queries the creditor’s bank, which then requests their customer (the creditor) to provide a copy of the agreed mandate. If a copy is not provided within the specified timeframe, the collection is reversed. If the mandate is verified, business continues as usual, with the debtor and creditor resolving differences outside the banking system.

EFT debit orders tend to have high rates of disputes and as a result can be an expensive way for businesses to collect from their customers, even if the initial mandate comes at a lower cost vs other solutions like DebiCheck. Without a traceable mandate record and an automated, streamlined process to authenticate mandates, EFT debit orders are more likely to be disputed than alternative methods, costing businesses much more in lost revenue and fees for failed collection attempts. 

The downside is that EFT debits - or unauthorised mandates - are processed at the end of the settlement window, and can also result in insufficient funds in the account, leading to further failed payments.

How do DebiCheck mandates differ? 

DebiCheck mandates are authorised on the debtor’s banking channel, including their banking app. The process is streamlined and traceable as a digital record of the mandate, and its authorisation is maintained by the debtor’s bank. Collections are processed only after the mandate has been authorised and when the collection meets the terms, such as the value and collection date, specified in the mandate. 

If the customer does not recognise the mandate request, they have the option to reject it, protecting them from illicit collections. Similarly, if a debtor disputes an authorised collection, the bank can protect the creditor by referencing the authorised mandate. As a result, DebiCheck debit orders are less inclined to be disputed, reducing operational costs for the service provider. DebiCheck collections are prioritised in settlement batches and processed early in the day to reduce the possibility of insufficient funds.  

Are there challenges to this collection method? Yes. 

The request to authorise a DebiCheck mandate does expire. So, depending on when the request was sent, the mandate can be missed or perhaps the customer may forget what it's related to and choose to ignore it. In this case, the merchant can submit a Request Mandate Service (RMS) collection and resubmit the DebiCheck mandate for the customer action. These collections are currently prioritised just after DebiCheck but can also be subject to disputes.

Beginning in March 2025, RMS collections will be replaced by RM collections, which will be processed in the evening, increasing the chances of insufficient funds or failed transactions.

What is the process for authorising a DebiCheck mandate?

DebiCheck provides businesses with three ways to initiate a DebiCheck mandate request:

• Transaction Type 1 (TT1) are mandates sent to the debtor bank in real time. The mandate can be authorised immediately or until 8pm same day. This type is commonly used for single mandate requests. If the customer fails to authorise the mandate in that time, the business must start again.
• Transaction Type 2 (TT2) mandates are sent to the debtor banks overnight. The customer then has two days to action the request. This type is commonly used for batch mandate files. Again, if the customer fails to authorise the mandate in that time, the business must start again.
• Transaction Type 3 (TT3) uses card and pin authentication at point of sale (POS) to immediately authorise the DebiCheck mandate via card present, leading to a more efficient and effective way to authorise debits, during the course of the initial transaction. 

Why is TT3 important? 

‍While DebiCheck can be authorised over multiple online channels, a true unified commerce experience must include in-person solutions that enable the customer to complete the full transaction at the time of purchase. In-store shopping is still in demand, with 64% of South African consumers preferring to shop with brands that have both an online and in-store presence. TT3 provides merchants with a flexible way of authorising DebiCheck mandates at the point of purchase, while they have the customer in front of them. 

Key features and functionalities:

• Uses the customer’s card and pin to authenticate their identity at POS
• Once authenticated, the mandate is authorised by the customer’s bank without any further actions from the customer
• The DebiCheck mandate is authorised in real-time

How TT3 optimises collections

Card is the second most popular payment method in South Africa, so many customers have their card with them in-store. TT3 enables service providers to make DebiCheck collections simpler and easier for their customers by authorising a mandate with the swipe of a card rather than requiring customers to manually enter their banking details.

Use cases:

• Telecommunications: Authorise the DebiCheck mandate while signing up for a cell phone contract. With Stitch, customers can also pay any once-off fees in the same flow using the payment method of their choice 
• Financing: Authorise a mandate while signing up for financing at an automobile dealership or a lending office
• Subscriptions: Authorise a mandate while signing up for a gym membership or club
• Retail: Authorise a mandate to make regular account payments

TT3 allows businesses to improve customer service by addressing questions and concerns about the contract and mandate in real-time, before the customer submits the request to their bank, reducing the likelihood of dropoff. It also gives the customer more options to choose how they would like to authorise the mandate. As a result, TT3 reduces operational costs with clear, traceable and authorised mandates that provide a strong foundation for successful collections.

Collect payments your way

Boost conversion and collection rates. Partner with Stitch to enable your customers to authorise a mandate using card present, while offering the flexibility to pay in multiple alternative or fallback payment methods, including Pay by bank, card and digital wallets. 

Take control of your collections with PCI DSS compliant TT3 mandates, and position your business to collect debit orders effectively through our high performance API and payments gateway.

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