Direct Debit

May 14, 2023

Direct Debit

What Is Direct Debit?

Direct debit is a pre-authorized payment straight from a bank account. It’s a straightforward and convenient way for you to make online payments. This direct transaction can be for a certain amount or take place at regular intervals.

Direct debit works for recurring bills, gym memberships, and even online goods. Opening an echeck merchant account gives you the ability to offer this payment service to customers. From a merchant’s perspective, it is a more secure type of payment and often has lower fees. Moreover, it can deter chargebacks and fraud that are more likely to occur through credit card transactions.

SEPA Direct Debit

DDA Debit

Using SEPA Direct Debit is common in the European Union. Many cultures lean away from credit-based transactions and lending. Accordingly, these places have more widely used systems that streamline debit transactions.

In the EU they have a system called SEPA direct debit, which works similar to electronic checks and ACH payment processing in the United States.

DDA Debit – Two Meanings

The first definition of DDA Debit means checking account. In this case, DDA stands for Demand Deposit Account. Banks use the term colloquially and sometimes print it on your statement to describe where payments came from.

The second definition is Direct Debit Authority. This is a type of automatic payment between two debit accounts at different banks. Use this to recover funds over time. Each Direct Debit Authority has its own frequency and withdrawal dates.

Direct Debit Payment Benefits

SEPA Direct Debit

For your customers, direct debit payments allow them to keep track of their charges and plan payments more easily.  This is a benefit for customers who prefer debit transactions over credit.

Along with the convenience debit offers, it also brings merchants closer to actual funds. In debit accounts, there is a direct exchange of existing money. Therefore, customers should always have enough money in their accounts to facilitate payments.

A merchant needs permission to make payments, but even with it, customers can revoke the approvals they granted. In some cases, the process of revoking the authority can be inconvenient at times requiring you to write a letter depending on the legal laws and regulations of your contract.

Connecting Your Bank Account

How do you connect your account information to make a payment? This process is easier than it may seem. In most cases, it involves entering two pieces of data, your routing number and account number. Both of these are on a standard paper check, or you can access them through your online banking portal.

Routing Number

A routing number shows the identity of the financial institution associated with the account. The American Banking Association (ABA) made this nine-digit code, a national way to gather this important data. In full, the name is ABA routing transit number, and it’s printed on the bottom of checks.

Account Number

The account number identifies your personal checking account. It’s a unique ID identifying each separate location you store money. Debit, checking, and savings are some of the most types of accounts that will each have their own distinct number.

Standing OrderWhat Is A Standing Order?

Direct debit and standing orders are different, but sometimes people use the terms interchangeably. Standing orders are when you make instructions to your bank to carry out and make payments to a person or an organization.

Direct debit is an authorization to an individual or organization to make withdrawals from your account when they are due.

Direct debits are extremely secure. With them, a customer can easily receive a refund in case an incorrect payment is made. In a standing order, you don’t get that level of security, and once payment transfers, you can’t get it back.

Direct Debits and Chargebacks

Merchants have very few grounds to challenge a chargeback that is generated under the direct debit guarantee. They can only pursue payments which they believe have been incorrectly refunded to the payer through the use of the small claims court.

Payment fraud is a pressing problem. It has been increasing over the years majorly because of the failure of banks towards implementing controls that prevent companies and fraudsters from taking money through consumer and business accounts.

Overdraft Protection For Customers

In the case a customer doesn’t have money to make the payments, their bank can refuse the transaction being generated. Alternatively, in the case where they lose money because their bank didn’t cancel a direct debit authority when requested, they will be eligible for a refund.

Nevertheless, direct debit is a useful tool. It is commonly used for payments, increasingly by the young generations. Many credible institutions like PayKings offer their direct debit services for merchant accounts.

May 14, 2023 | Merchants | Guest Post