Nearly 40 percent of people worldwide use direct debit from bank accounts as one of their payment methods, according to recent survey conducted by The Nilson Report in January, regarding consumers’ payment behavior for the last six months. Direct debit from bank accounts is just behind credit cards (53 percent) and PayPal (43 percent), and about the same as debit cards (39 percent).
Direct debit—that is, a financial transaction in which one person or seller withdraws funds from another person’s bank account—has emerged as a top buzzword in the payments sector. For online retail transactions, direct debit usually works like this: A direct debit logo would show as an option alongside credit card, PayPal and other payment options on the checkout page. A customer using direct debit would enter email, name, bank sort code [routing number] and account number data. That checkout page can be hosted by a PSP or merchant over a secure link.
Direct debit is mostly used in regular and occasional payments, specifically for low-value or recurring transactions such as utilities and subscription fees. In Germany, for instance, consumers who tend to use cash more often than do shoppers in other Western countries, also tend to view direct debit as a reliable online payment method.
Here are some advantages of direct debit:
- Compared with traditional cards, direct debit possesses competitive advantages for consumers and merchants. Due to expensive transaction charges and slow confirmation processing times, payment cards can burden online merchants. Some online retailers can lose customers who may not want to run up credit card debt or who otherwise prefer to deal in cash, as is the case in Germany and some other countries.
- Due to regulatory developments and changing consumer expectations, direct debit is continually evolving. It has evolved into a more secure, rapid payment method, finishing in real time, with confirmation within few minutes. Total turnover value of direct debit is estimated to reach $13 billion by end of 2019, more than the $5 billion at the end of 2014.
- Apart from domestic transactions, direct debit also can serve as an ideal payment type for cross-border transactions. Consumers don’t need to deal with complicated expensive currency exchange. Instead, they could pay with local currencies.
Direct debit is often an important complementary payment method for merchants and marketplaces that would like to develop their cross-border businesses, and it can help to reduce abandoned carts and increase conversion rates. For banks, direct debit represents a real timeliness: With it, they can regain some ground against providers of alternative payment methods. Finally, direct debit represents an opportunity for technology providers that can provide a simple interface between merchant and banks.
Clive Williams, a 15-year veteran of prepaid in Europe, is global business development manager at Limonetik, where he is responsible for new business development activity in Northern Europe and Asia. Clive also is in charge of key strategic focus areas, including payment methods, retail/merchants and Marketplaces and payment service providers. He can be reached at Clive.firstname.lastname@example.org.
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