Direct Debit

The customer authorises the merchant, or its provider, once by setting up a mandate. After that, the merchant submits collections to its bank, which requests the money from the customer's bank through a clearing system. Major schemes include Bacs Direct Debit in the UK, SEPA Direct Debit for euro accounts across the SEPA area and ACH debits in the United States under Nacha rules. Collections are processed in batches on business days rather than instantly, so they take longer to complete than card or instant payments and can fail if there are insufficient funds.

Direct debits are inexpensive to process and suit recurring billing, because bank accounts do not expire the way cards do. The trade-off is strong payer protection. Under the UK Direct Debit Guarantee, customers must normally get 10 working days' notice of changes to the amount or date, and if a payment is taken in error their bank gives a full and immediate refund, which is then reclaimed from the merchant through an indemnity claim. Under SEPA Direct Debit Core, consumers can ask for a refund without giving a reason for eight weeks after the debit, and for up to 13 months if it was unauthorised; the business-to-business scheme gives no refund for authorised debits.

Merchants usually offer direct debit through their bank or a specialist provider. Compare how mandates are set up and verified online, notification rules, handling of failed payments and retries, and the process for indemnity claims.