What is Direct Debit?
Direct debit is a safe and easy way to collect payments from a customer’s bank account automatically. The money is transferred directly from one bank account to another and does not require any card or manual payment. Direct debit is known as SEPA in Europe and BACS in the UK.
You can make both recurring and one-off payments using direct debit. This could include regular bill payments such as utility bills or recurring payments such as fixed subscriptions or membership fees. In direct debit, a customer authorizes a merchant to collect payments directly from their bank account by filling out a Direct Debit mandate. This can either be in a paper format or a web page that the customer fills out online.
Direct debit is a good option for one-off payments where a customer doesn’t need to make a payment instantly. However, it is not advisable to use direct debit for one-off payments where payments are required immediately, for instance, e-commerce.
In direct debit, merchants have to give customers advance notice on the amount and date of each payment. Customers are also eligible for a direct debit guarantee. They can get immediate refunds if they are incorrectly billed for payments that they should not be billed for.
Direct Debit in Europe
In Europe, direct debit happens under the Single Euro Payments Area (SEPA) scheme. This scheme is approved and regulated by the European Payment Council (EPC). SEPA covers all EU-member states as well as other European countries where the Euro is commonly used.
SEPA makes it much easier to make cashless payments across countries within the EU. This includes payments made by direct debit, instant card transfer, and bank transfers. And all of this at the same convenience of domestic payments.
The SEPA scheme aims to simplify cross-border payments and make them as cheap and easy as making payments within one’s own country. SEPA makes it possible for companies to collect payments from customers living and working anywhere within Europe through direct debit. Thus, payments can be made safely even when the company and the customer are in different countries.
There are many advantages to this. For instance, it helps to promote greater mobility in payments among SEPA member countries. It also makes the payment space more competitive by creating a single market. Thus, it brings down prices of payment services and gives more flexibility to consumers. Currently, over 43 billion transactions in 36 member countries are made via SEPA.
How do they impact the customers?
Direct Debit makes payments simpler, safer, and more flexible for your customers. Here’s a quick look at these:
Convenience: Direct debit payments are automatic, so bills are paid on time and are not lost or forgotten. This not only saves time but also gives them peace of mind.
Saves money: Many businesses offer discounts and offers to customers paying through direct debit. This saves customers money.
Protects the customers: Direct debit is one of the safest payment methods right now. Hence they keep customers’ money and data safe.
Why is Direct Debit good for your business?
Direct debit also holds many benefits for merchants like you. These include:
Timely payments: With Direct debits, you get paid on time. Since direct debits are automatic, you do not have to chase customers for payments. When you get paid on time, you can pay your suppliers on time and plan for your future with more confidence.
Saves you time: With direct debits, you save time. You need to set up a direct debit payment only once. All is needed is for your customer to share their bank account details and authorize you to take payments. Once this is done, payments are debited automatically from the customers on time.
Payments are safer: Direct debits are bank-to-bank transfers hence are totally safe. Since the payments are made directly from one bank account to the other with no other party in between, there is a much lesser risk of fraud.
Saves you money: Direct debits are bank-to-bank transfers. Hence, you do not have to spend money to cover the costs of using card networks. Thus, you can channel your funds to other pressing matters.
Easier for your customers: Direct debits are safe and easy for consumers and thus a popular choice. Direct debit payments help you to offer more flexibility to your customers. This helps in building loyalty and stickiness with your brand.
How can a payments partner help you with direct debit payments?
The right payments partner can guide you in setting up your direct debit payments. Payment partners who can receive SEPA and BACS direct debit payments and offer you a 100% payment guarantee would be the ideal choice.
Look for a payments partner who gives you a high degree of security along with the usual benefits of direct debit payments. They should also offer you risk protection against failed or cancelled payments. Your payments partner should also help you to manage your account receivables and collect your payments on time.
The option of white-labeling is a bonus. Look for a white-label solution that can easily work with all direct debit schemes, including SEPA and BACS. This will ensure your brand name is all your customers see in the entire buying process.
They should also be able to minimize any friction with your customers in case of any payment issues. The right partner will help you settle any issues related to payments and ensure your customer service remains top-notch. This way, you are safe from losing customers to any unpleasant payment experience.
Jose Augustine is the Chief Business Development Officer at Novalnet AG with extensive experience in European payment industry and a knowledge powerhouse.