Direct Debit vs Recurring Card Payments

In the world of recurring payments, subscriptions, monthly premiums and collections there are generally two schools of thought: 

1)    Direct Debit is a tried and tested payment method, it’s low cost and easy to set up.

2)    Recurring Card Payments are expensive and if a customer has their card lost/stolen, it expires or they change their bank – this will result in pain and lost revenue.

However, there is another school of thought: How about offering the two methods of payment alongside each other?

Let’s examine each method in a bit more detail.

Direct Debit

This is an instruction from your customer to their bank, which gives express authority and permission to collect money directly from their bank account whenever their payment is due. Payments and frequency of payments can vary, but advance notice must be given prior to any changes in the amount debited.

Card Payment

Recurring card payment (also called a continuous payment authority (CPA)) work in a very similar way, except there is a slight difference in where you are collecting the payment. Direct Debit means that you are taking payment from a customer’s bank account, whereas CPAs mean that you are taking payment from their credit or debit card.

Here is an interesting thought:

Why do some companies like Netflix, Xbox Live and Amazon Prime only offer continuous card payments?

Control

Direct Debit - Direct Debit puts control in the hands of the service provider, reducing reliance on customers and reducing the number of lost payments.

Card Payment - Customers are used to card payments, they like them! Account updater removes the risk of lost payments. 

Automation

Direct Debit is automated, reducing administration and allowing staff to focus their attention on other areas of the business.

Recurring card payments are automated once setup, and the amounts and dates can be changed very easily and quickly.

Flexibility

Direct Debit - Payments can be easily adjusted in line with price drops and increases.

Card Payments - The changes are instant instead of potentially up to 6 working days for DD. The ability to retry a card payment.

Cost

Direct Debit is cheaper than other payment methods, such as cheque or card.

Card Payments -  Yes, the costs are higher compared to DD but if conversion is higher, customer loyalty increases and the business grows - This is a good return.

Paperless

Direct Debit - It’s paperless so there’s no need to find space for filing and storage – great news for businesses and the planet.

Card Payments - These are paperless and all reconciliation, reporting and data is completed online.

Appeal

Direct Debit is attractive to customers due to its ease and cost-effectiveness.

Card Payments - Customer are demanding multiple ways to pay; they want to choose. Proven to increase conversion.

----

It is true, there are pros and cons for each of these payment methods and ultimately, if your sole purpose is just to keep costs down – Direct Debit will win over.

If your goal and purpose is to grow your customer base, improve loyalty, increase conversion, then having Card Payment as an alternative for your customers will prove extremely beneficial.

Making it ‘easier’ for customers to make payments can be an effective way to boost your business. Direct Debit and CPA (Continuous Payment Authority) both make regular and recurring transactions simple.

Some final thoughts...

Not all customers are happy to set up a Direct Debit, so this allows you to take recurring card payments that vary in frequency and amount. It will remain in place until the customer cancels the arrangement.

The fast speed of payment varies by provider, but card payments are typically in your business account within 24 hours.

Direct Debits can take up to 6 days for initial payments to clear. You cannot retry a Direct Debit, but you can instantly retry a card payment and if the card details have changed for any reason, an Account Updater will fetch the new details from Visa & Mastercard to facilitate a seamless payment experience and reduce time in chasing customers. 

For some industries Direct Debit is a must, but when dealing with failed or overdue payments, it is crucial to recover these monies as easily and quickly as possible. Consumers are extremely busy, sending a card payment link to their phone or email and enabling to pay using a credit or debit card is great customer service and a huge benefit to your business.

Many companies also offer card payments in their ‘Manage Your Account’ section of their website – This means, the customer doesn’t have to spend time on the phone, on hold, or in queues and will feel more comfortable accessing their account and bringing it up to date at a convenient time.