Voice of the Industry

Direct Debit - trends and updates

Monday 11 November 2019 09:07 CET | Editor: Tiberiu Avram | Voice of the industry

Direct Debit payments are so called pull-payments whereby the merchant initiates the transfer of funds from consumer to merchant. They are predominantly used for recurring payments (bill payments) or for small-value purchases.

Unlike the UK Direct Debit scheme, SEPA Direct Debit allows collection of payments in 21 Eurozone countries. It is best that the service be used for collecting regular payments, such as subscriptions, invoicing for services where instant payment is not required (marketing agencies, accountancy companies etc) or for account customers with an on-going relationship with the merchant, and it is ideal in markets with low card use, such as Germany or the Netherlands. On the other hand, SEPA Direct Debit is not suitable for transactions that need immediate clearing or transactions that are most likely to be charged back (high-value goods, for example).

One of the advantages of this payment method is that it offers a frictionless payment experience. Consumers indicate that peace of mind is the most important advantage of Direct Debit, given the nature of subscriptions. Consumers no longer encounter distress around due dates, delayed payments or fees.

Since consumers value the convenience of subscriptions, the involved payment methods should be simple to use by consumers. One way to achieve this is by storing payment credentials online or in a mobile application. Direct Debits require merchants to store payment details on file, necessary for future transactions. A study by SlimPay and Innopay has shown that more than 40% of consumers have at least once saved their payment credentials online to avoid having to re-enter their details for future purchases. Moreover, from those users that never saved their credentials before, 1 in 4 are willing to do so in the future. The study also shows that an average of 20% of the European respondents were unaware of the fact that setting-up a Direct Debit requires the provision of a mandate. The awareness of SDD Mandate on a global level reaches 80%. 

The popularity of Direct Debit has been on the rise since its inception in 1968. The volume of transactions processed each year for the last ten years has increased from 2.9 million to 4.1 billion. Based on current trends, Bacs estimates that the number of Direct Debit transactions will rise to around 4.6 billion by 2026. As a payment method, Direct Debit is popular in Germany, the Netherlands, UK (BACS Direct Debit), and Canada (Interac, a local Direct Debit scheme). In the UK, the figures show that 9 out of 10 people with a bank account have at least one Direct Debit while over a third of households use it for more than 6 of their regular payments. Moreover, research conducted by YouGov found that almost half of UK consumers were likely to chooseDirect Debit to pay for online subscriptions, compared to 32% who were likely to choose debit card.

As more and more consumers shift towards subscription-based services for digital services or physical goods, Direct Debit as a payment method to facilitate the recurring transactions process may also become more relevant. Also, this payment method might become more popular after the implementation of SCA in September 2019, due to its reduced friction in the payments process.

Providers of Direct Debit, such as SlimPay, GoCardless, AcceptEasy, Nuapay, TrustPay, or BlueSnap have made accepting Direct Debits easier for companies looking to implement recurring payment plans. Instead of connecting with a bank or Direct Debit bureau (which usually involves high set-up fees and tedious paperwork), merchants choose a Direct Debit provider and connect with the Direct Debit scheme via an API. Set-up fees are usually lower and the offering is more competitive, as different Direct Debit providers try to capture a bigger share of the market by charging lower fees or by providing other value-added services. 

This editorial was first published in our Payment Methods Report 2019 – Innovations in the Way We Pay, which provides a comprehensive overview of the up-to-the-minute trends, updates, and innovations in the payments space worldwide, depicting the key developments in the way people pay.

The Paypers is the Netherlands-based leading independent source of news and intelligence for professionals in the global payment and ecommerce community. Our products address ecommerce, payments, Fintech and fraud management professionals, as well as merchants, payment services providers, payment processors, merchant acquirers, banks, financial institutions, start-ups and technology vendors.
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Keywords: direct debit, SEPA Direct Debit, online payments
Categories: Payments & Commerce
Countries: World
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