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What is bank debit?

Bank debit is an umbrella term for various bank-to-bank payment methods around the world, which are designed for recurring payments. In the UK and Europe, bank debit is more commonly known as Direct Debit (where it is administered by Bacs in the UK, and SEPA in the eurozone). In the US, many refer to it as ACH Debit.

There are several elements which these payment methods have in common:

  1. One-time authorisation - To pay via bank debit, a merchant’s customer only needs to complete a one-time, up front authorization form, which gives permission for that merchant to directly withdraw funds from their account.

  2. Pull-based - Bank debit enables a merchant to control when they take payment from a customer’s account. This differs from push-based payment methods, such as bank transfer, where the merchant relies on the customer taking action to make the payment.

  3. Bank-to-bank - Funds are transferred from the customer’s bank to the merchant’s bank, without involving the card networks (such as Visa or Mastercard).

  4. Fixed or variable - Payments can be of fixed or variable amounts, and they can also occur at fixed or variable frequencies.

Why is “bank debit” used rather than “Direct Debit” (or another term)?

Here at GoCardless, we use the term “bank debit” because we serve customers all over the globe. Where we can, we’ll use the country-specific terminology (e.g. “Direct Debit” when we’re speaking to UK businesses), however this isn’t always possible.

When we’re speaking to a multi-country or global audience, or to a region which doesn’t have a strong association with a singular term, we avoid confusion by sticking to “bank debit”.

How does bank debit work?

At a high level, payments via bank debit work as follows:

  • Customer chooses to pay via bank debit

  • Customer completes an authorization form

  • Merchant sends advance notice to the customer of the upcoming bank debit payment

  • Merchant submits payment request via the relevant bank debit scheme

  • The banks execute the request and settle the transfer of funds

  • Merchant receives the funds in their bank account, after any relevant clearance period

For more detail, check out how online payments via ACH Debit work.

Bank debit schemes around the world

As stated above, bank debit is an umbrella term that covers many different payment schemes around the world, notably including:

Country Scheme Currency
🇦🇺Australia BECS AUD
🇨🇦Canada PAD CAN
🇩🇰Denmark Betalingsservice DKK
🇪🇺Eurozone SEPA EUR
🇳🇿New Zealand BECS NZD
🇸🇪Sweden Bg Autogiro SEK
🇬🇧United Kingdom Bacs GBP
🇺🇸United States ACH USD

We have a number of guides to these bank debit schemes, to help answer any questions you may have:

Benefits of bank debit

For businesses, accepting payment via bank debit offers many benefits over alternatives like card payments, bank transfers, and digital wallets like PayPal.

  • Low cost - As bank debit payments are routed through the banks’ networks rather than card networks like Visa or Mastercard, fees can be significantly cheaper.

  • Improve cash flow and reduce payment chasing - As bank debit is a pull-based mechanism, you don’t have to rely on your customers to manually pay you. Instead, funds are withdrawn from their account automatically on the due date.

  • Less payments admin - Once it’s set up, bank debit saves both you and your customers time, by enabling you to take payments automatically without your customer needing to lift a finger.

  • Lower payment failure and reduced churn - Bank debit payments are taken automatically and from your customer’s bank account. This helps fight churn in two ways. Firstly, unlike manual payments, automatic payments don’t provide your customer a regular interval to reconsider continuing the relationship with your business (i.e. when they must pay you). Secondly, bank accounts don’t really expire, get cancelled or are stolen, unlike credit and debit cards - so payment failures are much less frequent - reducing instances of involuntary churn.

  • Flexibility - Payments via bank debit can be fixed or variable amounts, as well as be taken at fixed or variable frequencies. This is a key advantage bank debit has over standing orders.

  • Easy to access / high penetration - For your customers to pay you via bank debit, they just need to have a bank account. They don’t need additional products like credit cards or digital wallets.

How to access bank debit

There are three primary ways a business can get started taking payments via bank debit. These are:

  1. Accessing the scheme via a bank debit provider like GoCardless

  2. Accessing the scheme via a bank debit bureau

  3. Directly accessing the scheme via the banks

From top to bottom, these options are increasingly difficult and expensive to set up and maintain. If you want to get started with bank debit quickly and easily, opt for a payment service provider who specialises in bank debit, like GoCardless. If you have the time, funds and resource to set up and manage direct access to the scheme, there’s an extra element of control you can have over the process, however this is usually only a feasible option for large enterprise businesses.

More detailed guidance on how to access a specific bank debit scheme can be found in the guides linked to above.

We can help

GoCardless helps you automate collection of recurring payments, via bank debit. Find out how GoCardless can help you with ad hoc payments or recurring payments.

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