Recurring Card Payment vs. Direct Debit: Best choice for your business

Remay Villaester (May)
26.10.20
4 minute read

Overview
There is no denying that online payments make it simple, quick, and easy for businesses to pay. The recent UK Giving report found that online payments have become a common way of transferring money to different organizations.¹

Regular customers buying from a business demonstrate a long-term commitment. It also gives you, as a brand, an excellent opportunity to strengthen a long-lasting association with them. Plus, you get an on-going source of financial support and funds, which enable better development and planning. No doubt, it is a win-win for everyone!

Recurring card payment and direct debit, in this regard, are the two main ways businesses can collect payments from customers. But they do have some key distinguishing features that may impact you and your buyers.

Before we delve into the discussion to find out the differences, it is essential to understand both payment types' basic features.

Recurring Card Payment vs. Direct Debit

A recurring card payment refers to 'Continuous Payment Authority' (CPA) whereby you give permission for a company/merchant to take money from your account on a regular basis using your debit/credit card details.² Direct debit works very similarly except that you give different account details and the payment doesn't usually take place instantly.

However, the biggest advantage of using direct debit is the cost as in most cases, depending on the banks involved, is cheaper than card payments.

To elaborate on this;

Though both types may seem quite similar, they have some key differences. You need to determine the type that fits the needs of your business and your buyers. Take a look at these characteristics to determine the differences.

  • Set up

Interestingly, both recurring card payment and direct Debit give merchants complete control in terms of payment amount and date. The online payment gateways enable customers to manage almost all aspects of CPA payments.

  • Speed

When it comes to speed of payments, recurring card payment makes a better option. Although the payment speed varies by providers, recurring card payment can complete transactions within the same day.

However, direct debit payment often takes six days initially to clear payments and five days to transfer them. This feature makes recurring card payment ideal for next-day payments.

  • Flexibility

Flexibility is another feature that impacts the online transferring of funds. Recurring card payment allows you to charge or fix varying amounts quickly without specifying the payment collection date. Direct Debit also has this feature, but it is essential to notice before you take payments.

  • Cost

Recurring card payment is relatively more expensive compared to direct Debit. It charges you a monthly fee. You may also have to pay a small amount per payment. The cost associated with direct debit conversely is low and affordable. It charges you a small amount of fee on every transaction.

  • Customer Retention

The payment failure rate of recurring card payments is around 5 percent due to pending limits and expiring cards. The payment system lacks effective customer retention compared to direct Debit, which merchants directly take from customers' bank accounts. The feature makes payment failure rates significantly lower.

  • Customer Protection

Recurring card payment has more limitations when you use debit cards. It allows customers to apply for reimbursement or refunds. Direct Debit, however, gives customers a high-level of protection. They can apply for an immediate refund from the banks if the merchant takes payment mistakenly.

Cost-effective Solution for International Card and Direct debit Payments

It's not a secret that payments, not only card and direct debit, in different currencies can be quite expensive due to poor exchange rates and high conversion fees most banks and merchants charge. This is why more and more companies are looking for alternative solutions to payments overseas. Choosing the right financial solution can mean saving you over 80% on international transfer fees - this is where Wise shines.

Wise have saved over 5 million customers on international transfer fees by providing currency conversion at the real exchange rate whether its an international bank transfer, card payment or direct debit. They provide secure, easy to set up and cost-effective solutions to customers, businesses and consumers, who are dealing with multi-currency payments.

This solution provides flexibility to digital nomads and international traders for a fair and transparent fee that is up to 14x cheaper than PayPal.

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Final Verdict

Overall, if you want to offer a first-class experience to your customers, you must consider the benefits of recurring card payments and direct Debit carefully. Both payment types have their pros and cons that may or may not suit your business. For paying invoices, if you have strict deadlines, it's better to use card payments for instant processing however, you’d have to compromise on the overall payment cost.

Sources:

  1. CAF UK giving report 2018
  2. moneyfacts.co.uk - Continuous Payment Authority

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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