What is Direct Debit?

Direct Debit is an automated payment method allowing merchants to take payment from customer bank accounts in New Zealand.

In New Zealand, Direct Debit is already a well-established payment method. In fact, during 2017, New Zealanders made an average of 24 payments using Direct Debit. According to Payments NZ, credit and debit cards experienced a transaction increase of 5.08% in 2017, while Direct Debits and Direct Credits went up by 6.7%.

In this guide we’ll walk you through the basic rules of the Direct Debit scheme in New Zealand.

We’ll explain the key features of the scheme, followed by details of how to access it. Finally, we’ll provide information about how to use Direct Debit to your best advantage.

Key features of New Zealand Direct Debit

The BECS Direct Debit scheme in New Zealand revolves around two core features.

  1. Pull-based Once the customer has authorised the merchant to take payments from their account, the merchant can continue to take payments without any further instructions from the customer. This makes Direct Debit an extremely convenient method of taking payments, both for the customer and for the merchant.
  2. Bank-to-bank Direct Debit payments are made from bank-to-bank, with no card networks involved. The process takes place directly between the banks, via the Bulk Electronic Clearing System (BECS).

Advantages of bank-to-bank payments

  • They're low cost. As Direct Debit payments are bank-to-bank, they’re not routed through New Zealand’s expensive credit card network.
  • They offer high customer retention. Customer credit or debit cards can expire, which risks causing churn. Using Direct Debit completely eliminates this risk, keeping your customers with you for longer.
  • Available to all. Anyone can pay by Direct Debit, as long as they have a New Zealand bank account. BECS Direct Debit payments are open to everyone, including both businesses and consumers, which greatly increases your potential customer base.

Using Direct Debit via New Zealand’s bank to bank network does come with one disadvantage: it’s slower than using the credit or debit card networks, meaning that Direct Debit payments are not instant, so may not be suitable for businesses who require immediate payment such as e-commerce businesses.

In New Zealand, the BECS scheme is managed by an organisation called Payments NZ. Formed in 2010 with the support of the Reserve Bank, Payments NZ is the governing body responsible for New Zealand’s payment systems.

So what exactly does Payments NZ do? Its main responsibilities include the following:

  • Managing the rules and standards for New Zealand’s core payment systems
  • Helping new participants become part of the systems
  • Facilitating the making of payments between participants
  • Promoting safe, open, interoperable, innovative and efficient payment systems in New Zealand.

Find out more about collecting Direct Debit in New Zealand with GoCardless.

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