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Direct Debit: Shift From Cashless to Cardless Transactions

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It was not very long ago that people paid for everything with cash, carrying it in their wallets. Then came the credit and the direct debit cards, which allowed consumers to not worry about withdrawing money every time they wanted to buy something or for the business owners to deposit them in the bank.

When there are loyal recurring customers, it helps to have an automated payment structure that takes care of the systematic process. When the two parties, the payer and the payee, have established a platform of trust, computerised payments can be beneficial. Banks have now introduced direct debit, which is an automated method of payment. The establishments who have set up for direct debit can directly receive the payment from the customers’ bank accounts at regular, pre-approved intervals.

What is Direct Debit?

Direct debit involves the customer providing an approved mandate, and the merchant initiating the payment with the customer’s bank during the transaction. No card networks are engaged as communication happens directly between the banks. It is a secure and straightforward scheme for receiving payments from the consumers who visit the establishment regularly. After a direct debit scheme has been set up between the consumer and the merchant, payments automatically occur on a selected date without the parties’ intervention. This allows businesses to focus on their on-ground tasks and communication with the customers, and not worry about the payment.

How Does it Benefit Businesses and Customers?

The success of a business depends on the consistent turn-over it makes. Direct debit helps companies to know precisely when and how much money they would receive from specific customers at regular intervals. It also helps businesses increase customer movement frequency by making the payment manageable and attractive, earning more loyalty from them. Direct debits helps avoid missed payments, payment errors, and frauds as the business owners and customers immediately get the information. It is one of the most convenient and efficient forms of transactions as the money is quickly debited and credited from and to the bank accounts.

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Direct debit gives the merchants control on cash flow and permits the merchant to vary the amount and the payment frequency. It assures on-time payment which is beneficial for the business owner and the consumer. The merchants usually pay a high fee for debit card-based transactions, whereas that fee is considerably lesser with direct debit. The process is a fast, flexible, low cost, and has high retention due to the lack of expiry dates.

How Safe are the Transactions?

Direct debit is one of the safest modes of payment as the organisations that adhere to using direct debit has to undergo a thorough selection process. The banks monitor the transactions. This reassures the business about payments and the customers about the reputation and trustworthiness of the establishments. It allows the customers to apply for an immediate refund if they have made a payment by mistake. Direct debit authorisations go through Bulk Electronic Clearance Systems, which assures the transactions’ safety and credibility.

Direct debits helps pay recurring bills like phone and electricity bills, grocery bills, gym memberships etc. It saves the payer and the payee effort required to complete the transactions weekly, monthly, or quarterly. Hence it is highly recommended for merchants and consumers to set up direct debits and progress towards card-less transactions.