Is online Direct Debit a “Win-Win” for Everyone?

 

Direct Debit or Direct deposit as it is called in some countries has been around for decades now and making steady inroads as a payment method offered these days by many large merchants, often with incentives (such as vouchers or money off a bill) to customers to sign a direct debit mandate. Merchants who are part of the Direct Debit scheme (called Originators) claim that the service not only saves time and hassle for customers in general, but also that it facilitates easier scheduling, easier storage, is more secure, involves less cheques and reduces errors. Of course, both the merchants and the banks also gain these same benefits, not to mention the capacity to reach into a customer’s bank account directly to collect payment for a bill (something that a customer is not always completely happy about).

  

Despite its steady progress, Direct Debit’s growth has slowed until very recently, when on-line billing and/or payment portals have come into being and offered to speed up quite an old-fashioned process, in which a paper-based form still had to be sent in and signed before service could commence (and the whole process repeated when a direct debit amount changed). These new portals (such as the one at www.Payswyft.com as an example) not only offer traditional benefits to consumers (shown in the table below to the right-the top 4) but adds new customer benefits that are only possible online (shown in the 5 blue italics items in the right column below). The online portal therefore gives consumers even more reason to either use direct debit some of the time or use it as their primary payment channel.

  

Banks

• Saves data entry staff time
• Opens up new markets
• Reduces float costs/ Accelerates cash-flow
• Faster settlement
• Better merchant and customer retention
• Low per transaction costs

Originators

• Retains customers for longer
• Reduces float costs/ Accelerates cash-flow
• More payments on time
• Interchange fee savings
• Adds payment type flexibility
• Can tie to credit card

 

Consumers

• Lower chequing account fees
• Less hassle in writing cheques, stuffing envelopes and mailing
• Builds better credit history
• Helps avoid bill late fees
• Simple to use Alerts
• Less paper
• Easy cancellation
• Easy registration/set-up
• Can tie to credit card

Banks and Originators win too

It’s always critical for a customer to gain substantive advantage with a payment service of any kind but it is even better if the service provider can win at the same time. In the two columns to the left above are therefore the advantages gained by both the banks and the originators/merchants by pushing direct debit as a payment option. For the banks the primary advantage is that online direct debit payments reduce data entry time and staff, but not far behind is the new revenue possibility of opening up new markets (e.g. smaller merchants being introduced to the scheme). For the originators the primary advantage is that it helps to retain customers, who typically like all their payment history to be available at the portal. Just as important though is the cash-flow benefit. Direct debit payers almost always pay on time (and many pay early). No more cheques in the mail on the last possible day.

  

Summary

Direct debit is not a new service but online billing and/or payment portals such as PaySwyft offer even more reasons for everyone to gain the benefit of using this payment channel.