Direct Debit vs recurring card payment

Direct Debits and recurring card payments are incredibly alike. In fact, they are so alike, people often get them confused. However, there’s a vital difference between the two that has a major impact on businesses.

What is Direct Debit?

This is an instruction from your customer to their bank, which gives express authority and permission to collect money directly from their bank account whenever their payment is due. Payments and frequency of payments can vary, but advance notice must be given prior to any changes in the amount debited.

For more information on Direct Debit, read our Direct Debit overview guide.

How is that different from recurring card payments?

Recurring card payment (also called a continuous payment authority (CPA)) work in a very similar way, except there is a slight difference in where you are collecting the payment. Direct Debits means that you are taking payment from a customer’s bank account, whereas CPAs mean that you are taking payment from their credit or debit card.

This means that CPAs are based on one specific card number, which could change in the future, but Direct Debits are based on a bank account number, which is unlikely to change.

Which is best for me?

  CPA Direct Debit
Set up Your customers approve a recurring credit or debit card payment using their card number. This can be online, on the phone, or face-to-face. You manage the setup, however, you might have to do a bit of extra work in setting yourself up as a merchant account. Your customers complete a Direct Debit Mandate form using their bank account number and sort code. This can be online, on the phone, or on paper.
Management & Admin Medium. You will need to keep an eye on all your customers’ CPAs so that you can ask them to update all their details when their card changes or is cancelled. On average, this happens every 3 years per customer.   This means a lot of constant and manual monitoring. Low.  Direct debit uses bank details (not card numbers) which rarely change through cancellation or expiry.
Failure rates High. Credit card cancellation and expiry mean that failure rates are about 5%. Very low. Often is as little as <1%.
Cost per payment High. On top of paying a monthly fee for a merchant account, you will often be chard around 3% for every payment. This makes CPA one of the most expensive forms of continuous payment. Very low. Depending on your bank/provider, you’ll probably pay either 1% or 20-40p per payment.
Flexibility High. You can charge fixed or varying amounts and don’t have to specify the exact date on which you’re going to take a payment from the customer. High. You can charge fixed or varying amounts and change the amount or date of payment without authorisation from the customer. You do have to give 10 days of notice if you are changing frequency or amount, though.
Late payments Low. You can decide when to collect payment as you don’t have to specify to the customer. Very low. You collect payment from your customer when it’s due.
Customer protection Medium. Customers can apply for a refund when using credit cards, but there are more restrictions for customers than there are with Direct Debit. High. Customers can apply for an immediate refund at any time if they think a payment has been taken in error. The risk of refund requests is low for most businesses.  

About DFC

At DFC, we offer a full service approach to collecting Direct Debit membership payments for gyms, leisure centres and other health & fitness operators.

We are focused on making running your business easier. Reducing time spent on admin work, and helping you take control of your entire member journey to increase retention and revenue.

DFC is brought to you by Xplor, the first global platform integrating software, payments, and commerce-enabling services to help businesses thrive.

Click here to get in touch today to find out how we can help your business.

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