19 September 2022, 11:48 (CEST)

BEYOND CARDS

The Advantages of direct debit and how to choose a provider.

As challenges to merchants mount up, so too does the complexity involved in efficiently accepting payments. Perhaps you’ve seen credit card fees sneaking up over the last year? Or maybe you need to reduce operating costs and chargebacks? Whatever the challenge, keeping payments frictionless and inexpensive is critical for merchants. But what are the key differences between payment types and which method is right for your customers? Whether you’re a merchant or a PSP, in this guide, we explore the advantages of direct debit payments and how to choose a provider.

Direct debit vs. credit card or CPA payments

While direct debits and credit card or CPA payments work in a similar way, there are vital differences between them that can have a major impact on businesses. Recurring card payments or Continuous Payment Authority (CPA) payments and direct debits collect payment in different ways. In a nutshell, direct debit payments take payment from a customer’s bank account, whereas CPA payments take payment from a customer’s credit or debit card. Here is a quick overview of the key differences:

DIRECT DEBIT PAYMENTS	CREDIT CARD OR CPA PAYMENTS
Direct debit uses bank details (not card numbers), which rarely change.	You need to monitor card numbers and keep track of when they change, expire, or are cancelled.
Very low failure rates.	High failure rates due to card cancellation or expiry.
Very low cost per payment.	High cost per payment for the merchant.
Easy for consumers to apply for a refund.	Can be more complex for customers to request a refund.

Thus it’s easy to see why so many merchants are moving to direct debit payments. So what are the top advantages of
direct debit payments? Read on and we’ll explain.

The top 5 advantages of using direct debit payments

#1: Customer convenience

The big benefit is customer convenience. Direct debit payments offer end-consumers a quick and convenient way to make payments. If you make the checkout experience and the payment experience extremely easy and seamless, you will optimise one of the most important elements of your business. Put simply, direct debits are consumer friendly. They are flexible, save time, and provide peace of mind.

#2: Cost

Keeping costs low is critical for any business right now. In fact, it’s often one of the first things that businesses think about when they consider direct debits over credit card payments. The good news is that direct debit is the cheapest method of accepting payment from your customers. Banks typically charge around €0.10 per direct debit transaction, compared to 3% for card transactions. It’s also highly scalable – perfect for a growing business.

#3: Checkout experience

As we mentioned before, customer needs, and convenience are key. Customers expect a streamlined checkout process. This should be as frictionless as possible, ideally without redirecting to third-party payment pages or involving added pop-up screens. With a direct debit service like SEPAexpress, the customer only needs to input their bank account details the first time to authorise payment. It is then pulled automatically from their account – for less frustration all around.

#4: Cross-border payments

More merchants are now selling cross-border in multiple countries using localised payments. In fact the global e-commerce market is expected to experience a Compound Annual Growth Rate (CAGR) of 24.9% by 2030. But traditional card payment methods can lead to declines, fraud, and chargebacks. The good news is that direct debit works well across borders – clearing a path for more streamlined flows.

#5: Risk management

CPA card payments are based on one specific card, which could change in the future, whereas direct debits are based on a bank account number, which is less likely to change. On average, credit and debit cards change every three years per customer. This means constant manual monitoring. In addition, you need to make sure that once a user wants to pay you, they can actually pay.

Direct debit or credit card payments –
which is right for your business?

Direct debit payments are emerging as one of the best payment methods to help you gain more customers, cut costs, and simplify payment processes. But it’s smart to consider carefully which solution is right for your needs. Here are five features you’ll want to look out for when comparing options:

1. Fees: How are the fees set up? And at what rate?
2. Security: What level of fraud protection is there? Are payments secure?
3. Cross-border reach: Do you need a solution which can easily scale across borders?
4. Customer experience: Your customers will want to feel that they are experiencing a safe and secure journey.
5. Business model: Ultimately, the payment method you choose for your business will depend on your business model and customers.

In summary, the best payment model should be affordable by reducing fees and chargebacks, and align with your customer and business goals.

When looking at potential payment solutions, understanding how to choose a provider is the next step. Selecting and integrating the right direct debit provider shouldn’t be hard if the provider understands your needs. By doing it right they can have an immediate and positive impact on merchants’ profitability.

KEY QUESTIONS TO ASK YOUR PROVIDER INCLUDE:
What unique features does the provider bring to the table?
How easily does the payment processing software integrate with your business?
Do they offer a clear and transparent fee structure?
Are their solutions compliant across Europe and the UK?
How quickly can they provide reconciliation and chargeback status updates?
Can they provide a balance check?
Are they GDPR compliant?
Can they identify the account holder for reduced fraud?

In summary, a good direct debit provider enables faster reconciliation, a clear and transparent fee structure, is fully compliant and offers the highest
level of security.

Wrap-up

Managing payment inefficiently eats into your business revenue and profit margins, which for many merchants are already tight. We find many merchants are often astonished at how much money they are missing out on due to low acceptance rates and high payment processing costs. Direct debit payments can simplify your payment processes, reduce operational costs, and protect you from failed payments as well as negative customer experiences. If you’re interested in finding out more about alternative payment methods, get in touch today.

Everything you need to know about SEPA Direct Debit.

BEYOND CARDS

The Advantages of direct debit and how to choose a provider.

What to expect in this blog:

Direct debit vs. credit card or CPA payments