Direct Debit vs. Recurring Payments…what’s the difference (+ how we tackle the "inertia" challenge)
Updated: Sep 11
What is a direct debit?
We are sure most people have heard of a direct debit. It is a popular way for setting up an automated payment. In fact, between 2009 to 2019 the total annual number of direct debit transactions in the UK alone rose from 3.15 Billion to 4.48 Billion. The direct debit gives the customer total control over the amount and frequency of their payments and is set up with the customer’s bank. The bank pays the supplier the set amount and the customer can be rest assured their money is safe and secure. Direct debits are usually used for bill payments e.g., gas, water, electricity, and memberships.
Direct debits can save you money
Switching from a regular bank transfer to a direct debit can save the bill payer money. Many utility companies offer reduced tariffs for setting up a direct debit mandate, as this ensures the customer’s payments are on time. The direct debit ensures no additional fees are racked up as result of a late or non-payment.
Direct debits can also help businesses as they require less administration than regular bank transfers, therefore saving the business time and money. Companies also get better visibility of the money which will be paid to them, so can manage their cashflows better.
Issues with Direct Debits
The main issue is lack of flexibility. Since the amount and frequency of a direct debit can’t easily be changed, the customer may have to “settle up” with their vendor if they are using too much of their service. A good example of this is a gas or electricity contract where a consumer may end up owing money. However, if a customer ends up in credit with their vendor, they are due a refund for their overpayment. Direct debit payments typically start one month after they have been set up, and in the fast-moving world of subscriptions, suppliers want instant payments which a direct debit can’t fulfil.
What is a recurring payment?
To respond to faster business demands where suppliers require payments to start immediately, the recurring payment enables vendors to manage the customer’s payments. Vendors can set both the value and frequency. This payment method has many of the same benefits of the Direct Debit but added flexibility allowing hassle free regular payments.
What are the benefits
Setting up a recurring payment is typically instant and, in most scenarios, a convenient way to pay for subscriptions. All that is required is your 16-digit card number, expiry date, and CVV2 number.
What are the risks
Unlike the direct debit, where the customer can easily cancel the mandate with the bank, with recurring payments the customer is required to cancel with the supplier. This can lead to difficulties with some suppliers. Common issues include getting charged incorrectly, difficulty contacting customer services when cancelling, payments should have been cancelled but are still been charged, or no easy cancelation button online. As a result, over 2 million consumers in the UK lose approx. £200m annually. This is where ScribePay can help.
ScribePay is building the bridge between direct debits and recurring payments, enabling users to trust their payments are secure, whilst giving them total flexibility and control of their subscriptions.
Using our app, customers can request a single use or multi use card. During setup, users verify the conditions, and authorise the supplier to charge varying amounts from their card. Similar to direct debits, consumers will be able to cancel the subscription with a swipe on the app. ScribePay’s aim is to eradicate losses within the subscription economy and create an environment emboldening the user to try new services and goods, with total peace of mind.