Capitec clears chaos

Capitec clients experienced a similar hacking scare in May 2012. Capitec Bank in Centurion Mall. (Pic: Centurion Mall)
Capitec clients experienced a similar hacking scare in May 2012. Capitec Bank in Centurion Mall. (Pic: Centurion Mall)

Cape Town - Capitec Bank [JSE:CPI] customers, who were convinced they were robbed of their money post-festive season last Sunday, flocked to Capitec branches seeking answers only to find that transactions done 19 days earlier had only been debited on their accounts on the Sunday.

According to the latest edition of Finweek, the nationwide incident affected about 168 000 of Capitec's 4.2 million clients who had made purchases at Shoprite, Checkers, Afgri, Pick n Pay, Fruit and Veg, American Swiss, Spur, Autozone, Woolworths, Totalsports, Tops, Spar, Score and other retailers.

It turned out that all transactions debited late on Capitec's clients’ accounts were made at card machines supported by Absa [JSE:ASA].

Although clients accepted the explanation, they were still left with some questions.

A Fin24 user, a bookkeeper who had worked for a number of small and medium businesses over the years and had worked closely with all the banks’ systems at some point or another, raised a few questions on the Capitec/Absa “glitch”.

She asked among others:

1. If it is usual but “not outside the interbank card system rule” for a transaction to take 19 days to clear (albeit 13 working days), what exactly does this rule state? Does this mean it is allowable for such a transaction to take three weeks to clear?

2. Why would local transactions need to go through the Master Card International clearing system? This smacks of finding an excuse to up transactional charges.

Capitec's head of communications Charl Nel responded to the Fin24 user's letter:

"Our clients and our staff are what make us; this was well evident in this past week with the technical issue experienced with the late deduction of point of sale purchases by another bank.

"As you can imagine, a business structures its resources on its historical data and where our call centre staff receive up to 2 000 calls on a regular Sunday, we received over 22 000 calls this Sunday past.

"Be that as it may – our staff remained calm under severe pressure from clients who needed answers fast. We are also satisfied that the organisation was able to pinpoint the problem quickly and communicate this to clients in an instant, using social media and SMS technology.

"As soon as the facts were conveyed, those clients who understand what happens in their accounts on a day-to-day basis understood what had happened and accepted that Capitec Bank has little control if a technical problem occurs at another bank, impacting our clients.

"Your letter refers to a number of concepts and incidents but we would like to take the liberty to answer only two of your points raised. The rest of your letter deals mainly with other financial institutions and we do not feel it is appropriate for us to comment on those issues.

"Herewith answers to these two issues:

1. If it is usual but “not outside the interbank card system rule” for a transaction to take 19 days to clear (albeit 13 working days), what exactly does this rule state? Does this mean it is allowable for such a transaction to take three weeks to clear?

Capitec's response:

The card processor system requires that transactions are processed in two steps:

In step 1 the cardholder authorises the transaction at the retailer by entering their PIN. Once done, the cardholder, if registered for SMS notices, will receive an SMS notification and the authorisation reserves money on the cardholder’s account, reducing the available balance by the amount of the transaction.
 
Step 2 is for the retailer (and the bank supporting the retailer’s card machine) to submit the clearing transaction to effect settlement of the transaction ie to receive the actual funds for the amount authorised.
 
The “rules” require that these transactions (step 2) be cleared within 7 days, but to cater for instances where there are delays or issues it does allow for late presentment of transactions (step 2) if a valid authorisation (step 1) was obtained.

This ability to send a late presentment is necessary so as to give retailers the comfort/security that they will receive the funds owed to them for the goods or services delivered to the cardholder – even if there are unexpected system issues along the way.

This is why it is allowable for transactions to take longer than 7 days to clear. Without it, retailers may not have the confidence to accept cards as a form of payment.  

Late presentments are unusual as the vast majority of transactions are processed within 7 days.

2. Why would local transactions need to go through the Master Card International clearing system? This smacks of finding an excuse to up transactional charges. And if Master Card requires this, I would imagine that Master Card’s systems are up to the challenge, especially since Capitec must have received confirmation of completed purchases, without which they would have had no idea that the purchase had been concluded, in order to be able to send a confirmation SMS.

Capitec's response:

There are different strategic and operational considerations for using a particular card processor whether it is a local or an international one. The decision on this is made by the bank who issues the card.  

For Capitec Bank clients there is no impact on which processor is used as clients do not pay a fee when using their card to purchase. This applies whether a local or international processor is used and also whether clients are shopping within or outside South Africa.  

"We trust that this gives you more insight into the process and methods we use to conduct our business."

 - Fin24

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