In December 2014 Bacs issued the latest version of rules for the UK Direct Debit scheme. This update has re-iterated the requirements for originators to verify both the identity and bank account data of payers when using paperless Direct Debits.
In terms of the depth and breadth of verification required the key phrase is:
“Prior to the origination of any Direct Debits the service user must verify the identity of the payer and his address, and ensure that the account details provided relate to the payer.”1
So what does this mean for those organisations already collecting payments using Paperless Direct Debits – or those who would like to in the future?
- A modulus check should be made on the bank account data given to confirm the validity of the bank account for the given account number.
- The originator must take steps to check that the customer they will be debiting is who they say they are and lives where they say they live.
However it’s not over there….
- The originator must also ensure that the account details provided relate to the payer. Elsewhere in the rules Bacs further states that a modulus check of bank account data “does not verify that the account is correct for the named Beneficiary.” 2
To meet the Bacs’ Paperless Direct Debit verification requirements organisations MUST therefore have in place solutions that can do ALL of the following:
- Carry out a modulus check of bank account data
- Prove that their customers are who they say they are
- Prove their customers live at the address stated
- Prove that the bank account details given relate to that customer
It is also worth noting that the rules also state that the validation or ‘modulus checking’ of bank account data needs to happen at ‘point of sale’, while the payer is still online3.
Use of the Paperless Direct Debit Scheme is an efficient and cost-effective method of setting up recurring payment instructions – just think of the cost savings in postage alone! It also offers consumers a quick and easy way to arrange on-going payment and can improve a company’s cash flow.
While the checks demanded may add a layer of complexity they are necessary to prevent fraud and error. With solutions available to automate and streamline these checks in real-time, they should not prevent adoption of the Paperless Direct Debits Scheme.
To understand more about the differences between validation and verification of bank account data click here to download our datasheet.
1 The Service User’s Guide and Rules to the Direct Debit Scheme Version 4.0 December 2014. Section: 16.3
2 The Service User’s Guide and Rules to the Direct Debit Scheme Version 4.0 December 2014. Section: 3.1
3 The Service User’s Guide and Rules to the Direct Debit Scheme Version 4.0 December 2014. Section: 16.3