The second wave of Covid-19 is likely to undermine inroads South African consumers have made into reducing their debt.
This positive trend was bolstered by the broad uptake of DebiCheck, the secure debit-order payment system introduced by the Payments Association of South Africa in November 2019, which ensures consumers can’t wriggle out of their debit-order obligations without good reason.
According to TransUnion’s latest Financial Hardship Study Wave 8 report, based on data collected in the first week of October 2020, 77% of South African consumers reported having their finances affected by the pandemic.
TransUnion data shows consumer credit in South Africa totals about R1.8-trillion, with 9% of accounts at least three months in arrears and 22.5 million credit-active consumers having impaired credit records.
South Africa was the first country in the world to implement a debit-order system requiring banks to request electronic authorisation from their clients. With around 48 million debit orders – worth around R80 billion – processed every month across all industries, DebiCheck has changed the game for debt collection efforts.
The chief executive of technology and financial gateway services company PAYM8, Andrew Springate, says rising debt levels are a major obstacle to debt collection, with many collectors across multiple industries trying to solicit payments from the same consumers.
Debit order disputes in the DebiCheck system are impossible, he notes. “As long as you process the debit order exactly in line with the date and value loaded when the mandate was created and the payment matches the authorisation given to the bank, the payer will not be able to dispute or reverse a payment.”
No going back
The system has already proved to work well for collections. Benay Sager, the chief operating officer of debt counselling firm DebtBusters, says that from a payments perspective, his company had a great December.
“We’ve been using the DebiCheck system for about a year and disputes have gone down massively since we started using it, by around 35%.”
Sager says because consumers are aware of the debit orders, they have certainty. And they cannot reverse them on their banking apps.
But there is concern about the impact of the new level-three restrictions, because of job losses in the hospitality, agriculture and retail sectors. That does not translate into more customers on debt review, Sager notes, because only those with an income qualify for the relief under the National Credit Act, but they expect to have a clearer picture in coming months.
“Towards the end of last year, payment behaviour was picking up, partly to do with lifting of the lockdown. It was a positive trend. And compared to previous years, we didn’t really see a dip in payments. People new to debt review are paying better. Intent drives everything – there are better payment records for those who joined in the last six months than in previous years,” Sager says.
Neil Roets, chief executive of DebtRescue debt counsellors, says they have been surprised at consumer willingness to repay debt. “Most people under debt review managed to make their payments. We saw that especially during December, which had the same repayment figures as the year before. One would have thought a lot of people would have fallen out of the system and not made repayments, but that recovered and we saw a very high percentage of people making their repayments.
“People also saved money during lockdown; they had fewer expenses. They spent less on food, not eating out. They saved.”
Roets credits the good payment result on the desire to return to reality: “People are fatigued. We want to get back to normal. The second wave is so unfortunate, because people were starting to feel like ‘normal’ was possible. When we were in lockdown, we were in limbo – that wasn’t reality. And what’s more normal than to pay your bills? It’s the responsible thing to do.”