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Card Payments vs. Direct Debit – Which Should You Choose?

One simple and effective step you could take to expand your business is to make it easier for customers to make payments. You might only accept certain payment types because it’s more convenient for you, but as a customer-facing business, is it really your convenience you should be concerned about?

The truth is that the subtle changes in payment types could make all the difference between making a sale and the customer choosing to go elsewhere, so you owe it to your business to make sure you understand all the options available to you.

Recurring card payments – A recurring card payment, also known as a ‘Continuous Payment Authority’ (CPA) is an authorisation provided by the customer that allows you, as the merchant, to take regular payments from the customer’s debit or credit card. Not all customers are happy to set up a direct debit, so this allows you to take payments that vary in frequency and amount. It will remain in place until the customer cancels the arrangement.

Examples of businesses that use this type of payment include utility providers, internet providers and those that charge regular membership fees.

Direct Debit – A Direct Debit is very similar to the process described above. However, in this case, the customer must authorise the merchant to take money from their account by giving you a mandate to do so. You can then collect regular, recurring payments, payments with varying dates and amounts, and one-off collections. One of the key differences between the two payment types is that a Direct Debit is paid directly from the customer’s bank account, so customers must sign up to the Direct Debit using their bank account and sort code.

The types of businesses that typically accept Direct Debit payments include landlords and property management companies, childcare providers, gyms and health centres.

What are the key differences between these two payment types?

Although on the face it they seem quite similar, there are also some key differences which could determine the best payment type for your business and your customers.

Set up

Continuous Payment Authority (CPA)

You have complete control – You control the date and the amount of the payment. Our online payment gateway allows you to manage every aspect of CPA payments.

Direct Debit

Again, you have control – you set up the payment and choose the date and payment amount. We can manage the whole process for you.

Speed

Continuous Payment Authority (CPA)

Fast – The speed of payment varies by provider but CPA can put cleared funds in your account within 24 hours. Perfect for next-day payments.

Direct Debit

Medium – Direct debit payments can take up to six days for initial payments to clear and five days thereafter.

Flexibility

Continuous Payment Authority (CPA)

High – You can charge fix or varying amounts and there’s no requirement to specify the date when the payment will be collected.

Direct Debit

Medium – Although you can charge varying amounts and change the date of the payment without the customer’s authorisation, you do need to give advance notice before payments are taken. This is something we can handle for you.

Cost

Continuous Payment Authority (CPA)

Medium – The cost of CPA is typically higher than direct debit, with a monthly fee as well as a small fee per payment.

Direct Debit

Low – The costs associated with direct debit payments are very low. You should expect to pay a small fee per transaction if you use London & Zurich as your merchant account, or a monthly fee to set up your own account.

Customer Retention

Continuous Payment Authority (CPA)

Medium – Due to expiring cards and spending limits being reached, payment failure rates tend to be around 5%.

Direct Debit

High – As direct debit payments are taken directly from customer bank accounts, payment failure rates are typically much lower.

Customer Protection

Continuous Payment Authority (CPA)

Medium – CPA allows customers to apply for a refund when using a credit card but there are more limitations when using debit cards.

Direct Debit

High – The Direct Debit Guarantee gives customers a high level of protection and allows them to apply for an immediate refund from their banks if a payment is taken mistakenly.

Which is right for you?

If you are serious about offering a first-class customer experience, it’s important you consider the benefits of Direct Debit and card payments carefully. If you’d like to discuss the best option for your business, please get in touch with our team who will be happy to talk you through your options and the processes for each payment type.

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