The importance of due diligence before signing someone up to a Direct Debit collection

Direct Debit is undoubtedly one of the safest forms of payment collection available. Of course, wherever there is money involved there is the possibility that people will attempt to exploit the system. Unfortunately, Direct Debit fraud can and does occur.

But with the right verification checks in place, fraud and mis-selling can be avoided. Here, Interbacs explains the importance of due diligence when signing someone up to a Direct Debit Collection Service.

Direct Debit fraud and mis-selling

The subject of Direct Debit fraud and mis-selling never seems to be far from the headlines these days. Although most of us are now wise to the perils of scams, there are many of us that are still unaware and fall subject to mis-selling.

This type of fraudulent activity sees individuals exploiting direct debit traps in order to target the vulnerable. Direct debits are highly regarded as a trusted method to pay bills, subscriptions, and other ongoing services. However, it is through this well-known payment method that unethical companies are using it as a sly way of getting people to part with their money without even realising it.

A common strategy for doing this is through the mis-selling of cover and other related services. These scandalous companies often impersonate domestic & general appliance cover services – a legitimate service that many people do wish to sign up to.

These companies often target the elderly and vulnerable by mis-selling them various appliance covers and insurances, all with the intention of getting them to part with their own money. It is through these ruses that individuals are being manipulated into unknowingly signing up to Direct Debits, with a monthly sum being taken from their bank account.

Here at Interbacs, we are an industry leader in safeguarding and due diligence and undergo a range of security checks and processes to ensure customers are being protected in every way possible.

Paperless Direct Debit

​Paperless Direct Debit enables organisations to sign up customers for Direct Debit collections over the telephone, online, telephone keypad, face-to-face or by interactive TV. This not only simplifies and speeds up the sign up process, but also reduces administrative costs. The organisation obtains the customer's account details and lodges the Direct Debit Instruction with the relevant payment service provider (PSP) using Bacs’ ​Automated Direct Debit Instruction Service (AUDDIS).

Paperless Direct Debit is only available to organisations using the AUDDIS service, which means they have satisfied additional criteria. However, there are associated additional risks involved in operating the service. As such, it is the organisation’s responsibility to verify the customer and validate their details. As a minimum, this includes their identity, account details, and address.

Know Your Customer (KYC)

Know Your Customer (KYC) checks are part of a wider set of banking regulations for verifying the identity of clients. KYC is a key driver in preventing Direct Debit fraud, with a view to ensuring individual payers are who they say they are and reside where they claim to live before a Direct Debit collection is taken. KYC checks are mandatory for Paperless Direct Debit sign ups, which are carried out remotely.

Paperless Direct Debit service users are required to adhere to the Direct Debit Scheme rules on paperless sign-ups, check each paperless sign-up (electronically or over the phone), check Direct Debit details at the point of capture, not rekey the payer’s details, and confirm the Paperless Direct Debit set-up to the customer within three days of sign-up. Such checks can help to assess the potential risks for illegal activity.

With regulations becoming increasingly more stringent, and a number of banks and insurance companies demanding anti-bribery and corruption information to be shared by organisations, KYC checks are becoming increasingly important. They can also be a major source of reassurance for your business. After all, it benefits you to know that the individuals and entities you are dealing with are reputable and trustworthy.

KYC checks can help you to minimise business risk. Ultimately, these checks can help you to protect your business from fraud, bribery, money laundering, human rights violations, and other serious crimes. Failing to protect your business by conducting resilient customer verification processes can leave you open to a high degree of reputational, financial and regulatory risks. All of which can be hugely damaging.

How Interbacs is fighting fraud

At Interbacs, we provide many companies with Direct Debit Services and it is these companies that collect on behalf of their customers. Any new client that wants to be taken on by us to utilise our Direct Debit payments has to pass through a great many checks and measures.

We are committed to protecting you and your customers from falling foul of fraud and money laundering scams. Firstly, we have been subject to thorough vetting before gaining authorisation to use the Direct Debit scheme and are governed by the strict rules outlined by Bacs and the Direct Debit Guarantee. We are also authorised by the Financial Conduct Authority under the Payment Services Regulations.

The reason we do have such a stringent risk process is because any Direct Debits collected under our Service User Number, we will be 100% liable for the indemnity risks due to the Direct Debit Guarantee. We strive to ensure that all end-users of our Direct Debit services are protected and safeguarded against mis-selling. We work closely with National Trading Standards and with Pay. UK, the industry regulator, to tighten up measures in this area.

Through our work with Pay. UK, whenever one of our clients sets up a new Direct Debit through us for a customer, a letter of advance notification of the Direct Debit is sent to that individual. This letter not only details the amount that will be debited from the customer’s account but also the date, giving them advance notice to be able to cancel it, who it will be taken by, with the Interbacs name, plus the end client details too.

In this letter, we also provide individuals with our phone number. This allows people to call us if they believe this information isn’t correct and our expert team is trained to provide the full level of support to help them.

In the quest to balance smoother customer onboarding processes and undertaking thorough verification checks, another source of customer information is that held by credit reference agencies. Experian is one such agency that has this information at their fingertips, which is why we choose to partner with them to provide fast and effective verification checks.

At Interbacs, we can give you greater control over managing your risk profile and customer journeys. In the current climate, businesses need to adapt to changing circumstances more than ever. We can give you the peace of mind that you are dealing with legitimate customers, as well as that your information is being handled appropriately, that your Paperless Direct Debits comply with all the relevant regulations, and that your financial and reputational risks are minimised as far as possible.

Save time and money with reliable, professional, and innovative payment solutions and services from Interbacs. For more information about any of our products or services, please contact us on 08444 127 180.