The evolution of bank debits over the years
Payment by direct debit, now common for settling recurring expenses (subscriptions, bills, etc.), has grown considerably over the past few decades.
The origins of the sample
The origins of direct debit date back to the 1960s. Introduced as a solution to simplify, automate, and secure the collection of recurring payments, direct debit helped reduce the use of cash and checks. In France, this system wasn’t formalized until 20 years later, in the 1980s.
SEPA : between harmonization and modernization of direct debit
The year 2008 marked a major turning point in the evolution of direct debit payments, with the creation of the
SEPA (Single Euro Payments Area). Its objective is to unify euro payments across the countries of the area (27 EU member states, plus the United Kingdom, Monaco, the Vatican, Andorra, San Marino, and the four EFTA member states), particularly direct debits, known as SDD (SEPA Direct Debit).
Innovation in the service of sampling
Over the years and with emerging technologies (APIs, Embedded Finance, artificial intelligence, etc.), direct debit payments have become increasingly digitalized and flexible, both in their implementation and in their execution and processing. From fraud management to the personalization of direct debit processes, this payment method is continually adapting to the needs of businesses and consumers.
Forms of bank debit
Direct debit is an automated payment method in which a creditor withdraws a certain amount of money from a debtor’s bank account and transfers it to their own account. Direct debit is most commonly used for regular transactions such as subscriptions, recurring bills, or loan repayments.
There are several categories of direct debit :
- Core Direct Debit: A standard direct debit model, allowing creditors to withdraw funds from debtor accounts, with their prior authorization (signature of a mandate).
- B2B direct debit: mainly used by public creditors (tax administration, tax service), this method of bank direct debit has a strict dispute policy, in which the debtor may under no circumstances dispute the transaction and request a refund (taxes, fines, etc.)
- Card debit: this is a debit method mainly suited to subscriptions, where an amount is debited from a card account in order to be transferred to a creditor.
How does payment by direct debit work?
The direct debit payment process involves 4 parties :
- The beneficiary or acceptor, i.e. the legal or natural person who will initiate the collection request and receive the funds ;
- The acquiring bank corresponding to the financial institution of the acceptor, which allows it to acquire, process and deposit funds received by direct debit ;
- The issuer, that is, the debtor, the person who owes the funds;
- The issuing bank corresponds to the financial institution responsible for the debtor’s account, from which the funds will be withdrawn.
Processing a payment by direct debit
There are several steps involved in paying by direct debit :
- Electronic signature of the mandate: The debtor provides all the required banking and personal information (surname, first name, IBAN, BIC, etc.) and signs the direct debit mandate, thus authorizing the creditor to withdraw funds from his account according to the defined plan.
- Transmission of the direct debit mandate: Once signed, the mandate is sent to the acquiring bank so that the latter can record the direct debit authorization and the necessary details.
- Preparation of the direct debit: The acquiring bank prepares a direct debit file indicating the details of the transactions (amounts withdrawn, beneficiary’s bank details, due dates, etc.) and sends it to the issuing bank using a special secure portal or a payment management system.
- Processing and verification: The issuing bank verifies and validates the direct debit mandate, then informs the acquiring bank.
- Funds Transfer : The issuing bank debits the amount from the creditor’s account and arranges for the funds transfer to the acquiring bank.
- Receipt of funds by the acceptor : The acquiring bank credits the issuer’s account with the withdrawn funds and updates the bank statements.
- Confirmation and notification : The creditor and the debtor receive confirmations of the transaction via notifications (SMS or email).
What are the advantages and disadvantages of paying by direct debit?
| Benefits | Disadvantages |
| Comfort and efficiency : once the SEPA mandate has been created, direct debits are made without any action required by the customer, with no date limit. | Limited control : less flexibility to adjust or cancel payments. |
| At the merchant’s initiative : Unlike the transfer, it is initiated by the seller and therefore allows their invoice references to be integrated into the direct debit request in order to automate reconciliation 100%. | Exceptional costs : mainly intended for “good payers” / customers whose solvency is not in question, because rejection fees may be charged to the company issuing the direct debit request in the event of insolvency. |
| No ceiling : bank debits are not subject to ceiling issues or expiry dates. | Contestable : The payer can contest and therefore request reimbursement of the SDD direct debit within 8 weeks regardless of the reason, and within 13 months for “unauthorized transaction”. |
| Low cost : Direct debit does not impose processing fees or subscription fees compared to card payments. |
What criteria should be taken into account before being paid by direct debit ?
Before selecting a direct debit payment solution, it is therefore crucial to consider all aspects of this payment method, in order to ensure that it best meets your challenges and needs.
Among the criteria to take into account :
- Activity : product/service sold, average amount, recurrence, etc.
- Location : Target country and area
- Potential risks : risk of dispute, limits and expiry of cards
- Costs : fixed, variable and exceptional costs related to the collection
¹ European Central Bank – Payments statistics: first half of 2023 (2024)
