In the modern era, customers have grown accustomed to having flexibility in the options available to them when they make a purchase, be it through the choice of entry level, mid-range or top-of-the-range, or the delivery options, and of course in the way they are able to make payments.
The rise of Contactless, M-Commerce and Open Banking show that the world of commerce is forever bending and developing according to the needs of paying customers, who will quite often go elsewhere to spend their money if a business cannot accommodate their wants and needs. With this in mind, it pays to be versatile as an operation with the available options for processing payments, and to also understand the payment methods you have at your disposal.
Recurring payments of any kind are generally available in two forms; fixed and variable. A variable recurring payment is when the amount charged can be changed from payment to payment based on usage, such as a phone bill. A fixed recurring payment is a pre-agreed fixed sum to be charged, such as a subscription fee for a streaming service.
Recurring payments are most commonly collected in one of three ways; Standing Order, Direct Debit or Recurring Card Payment (also known as a Continuous Payment Authority, or CPA), and each of them hold benefits to different businesses, depending on their services, products and of course business model. So, which one is best, and can a business benefit from embracing more than one of them, to ensure they never miss an opportunity, and perhaps even more importantly, ensure they don’t get stung by failed payments?
Let’s first look at what they are.
A Direct Debit is the process of an organisation arranging the collection of fixed or variable funds on a pre-agreed basis, with the express mandated permission of the account holder. The payments are pulled directly from their bank account as agreed, and the terms would not be changed without prior notice.
A Standing Order works very similarly to a Direct Debit, pulling funds from one account to another on a pre-agreed basis. The main difference between a Direct Debit and a Standing Order is that the arrangement is set up by the customer/account holder with their bank.
Again, similar to the above, a Recurring Card Payment occurs when a customer gives permission to regularly take money from a debit or credit card whenever the payment is due. It differs mostly in that the arrangement is set with the business and not with the involvement of the bank, and payment arrangements can be flexible, for example a payment can be taken when a spend limit is met or an invoice is due.
So how do these payment methods stand up against one another? We’ve compared them on four specific key aspects, so that you can better understand the benefits for your business.
It depends on the service provider, but generally a Recurring Card Payment will be cleared and in your account within 2-3 days. Next day settlement might be available from the acquiring partner, but normally this involves additional costs.
Direct Debits do typically take longer to clear into a business account than a Card Payment, and will typically take 3-5 days from request of funds.
Whilst they are usually processed on the same day as they are set up for, a Standing order will take 3-5 working days to clear.
As the business, you are in strong control of a Continuous Payment Authority, as the customer has given consent to have payments authorised as and when they are required, until they cancel the arrangement or their card.
Direct Debits are also a method of payment where a business maintains a strong control over the payments. However, if the mandate is for a fixed sum, the customer must be notified with good warning if you intend to change the Direct Debit value. A customer also has the ability to cancel a Direct Debit at any time.
As the account holder is the one who organises the recurring payment through the Standing Order, they are the one who retains control of payment arrangements. They select the value and regularity of the payment and can easily cancel the arrangement at any time, without the business being informed.
Because credit and debit cards have a finite lifespan, and are open to becoming lost, stolen or cancelled, a Recurring Card Payment can be at relatively high risk of leaving a business looking at failed payments and the headache that comes with chasing late payments.
Nine out of ten people use Direct Debit to pay some or all of their regular bills, which means it is a highly trusted process that many people are familiar with.
Bank accounts tend to be a much more long-term asset for customers and service users, therefore Direct Debits have a relatively low potential for failed payments, beyond the account holder cancelling the Direct Debit at their end. They have a strong retention factor, and allow for a more comfortable payment collection process.
As with Direct Debits, a Standing Order will send money from a bank account, and therefore at lower risk of failed payments. However, a Standing Order does not have the protection of a Direct Debit Guarantee for your customers, and therefore should appear far less attractive that the trust and protection afforded by a Direct Debit.
Often a very simple process, a Continuous Payment Authority can be agreed by a customer at the simple click of a button at the check-out stage, or entering a Recurring Payment agreement. This benefit, especially when people are accustomed to getting things quickly, can minimise the potential for an abandoned purchase or agreement.
As a fully regulated and protected method of payment collection, a Direct Debit requires the customer to sign a mandate giving a business express consent to collect the funds as agreed. Once the mandate is signed and received by the business, it will take around fourteen days to become live. It is quite common for an up-front payment to be collected in lieu of the first payment, with the second payment coming in the form of a Direct Debit payment.
The most time-consuming process from a customer’s perspective, a Standing Order requires them to visit their branch or sign into their banking profile and create the payment arrangement. It can be a laborious process to set up, although once done, the customer can easily leave the payments running as they would a Direct Debit.
All methods of taking a recurring payment come with pros and cons for both a business and their customers, but in order to maximise on all opportunities for not only gaining new customers, but turning them into loyal, repeat customers, it is absolutely recommended that you incorporate recurring payments into your available payment options.
Gala Technology has some great options available for both Recurring Card Payments and Direct Debits that will give your business greater freedom to cater for the wants and needs of your customers, new and existing.
Whether you’re looking to manage regular fixed transactions to take the stresses of chasing payment away or want the freedom to take invoice balances on a variable basis, the SOTpay+ payment gateway from Gala Technology can easily enable you to do so. SOTpay+ also comes with the added security of tokenising any card data stored on your systems, which means they are encrypted in a PCI DSS compliant manner.
Collecting payments direct from your customer’s bank account is quick and easy to arrange with Gala Technology’s Direct Debit recurring payment service. By working with Gala Technology to incorporate Direct Debit into your payment solutions, you will be provided with a fully branded ID that will feature on your customers’ bank statements, to avoid the risk of payment rejection, and all for as little as £9.99 per month (plus transaction fees).