Merchants who accept regular payments or who have a subscription business model are always on the lookout for the most efficient way to get paid. This week we explore the popular payment method, direct debit, looking at what exactly it is and why it can be beneficial for merchants.
What is direct debit?
A direct debit is the process of a business taking funds from a customer’s bank account. However, account holders will have to authorise this with their bank beforehand and complete a mandate form, also known as a direct debit instruction. Once this has been set up, no further action will be needed from your customers, but you will need to notify them if there is a change to the amount or date of collection. On average, it takes three working days for a direct debit to clear.
Direct debit vs standing order
Direct debits and standing orders are both automatic payment methods, but the former is managed by the merchant and the latter is controlled by the customer. For a standing order, the customer sets it up with their bank and arranges the frequency and amount of all the related outgoing transactions. Therefore, this payment method is normally used for regular payments of a fixed amount, whereas direct debits work better for payments that fluctuate, such as household bills.
SEPA direct debit
The Single Euro Payments Area (SEPA) was an EU initiative to streamline the process of bank transfers throughout European countries. SEPA direct debits (SEPA DD) are euro payments that are made between two different countries within Europe, but at a similar price and pace to domestic payments. Instead of just needing an account number and sort code, merchants will need to request the BIC and IBAN of their customers when wishing to set up a SEPA DD. With SEPA, you can securely process transactions for online and offline commerce. Over 20 billion transactions are made annually using SEPA direct debit, demonstrating its dominating presence in this region.
Benefits of direct debit
Merchants should explore whether direct debits work with their business model. They are useful if you need to collect regular or recurring payments from your customers. If you offer a subscription service, direct debits are a great way of reducing the number of late payments as you will be in control of when the money gets transferred. Automation also means that less of your time will be taken up by the admin of manually triggering payments. Furthermore, it offers merchants flexibility as the amount and frequency of payments can be adjusted whenever necessary. Another benefit of direct debits is that you don’t have to worry about card details needing to be updated; as long as your customer keeps the same bank account, their details will remain fixed.
SEPA direct debits have a higher conversion rate and cost less than credit card payments. Moreover, in areas of Europe where there is low credit card penetration, offering a trusted payment solution, such as SEPA DD, could help drive more sales and increase revenue.
Rounding off
At emerchantpay, we help businesses expand globally by offering efficient payment solutions for our merchants. SEPA direct debit is an extremely useful payment method for any European facing merchant to have in their tool belt. It allows merchants to accept regular payments from customers across the continent securely and without paying the fees usually connected with cross-border payments.
If you’d like to learn more about how emerchantpay can assist with your business’ global expansion, get in touch with a member of the team today.