What is recurring payment ?
This is a transaction that takes place multiple times between two entities. Today, many companies are adopting this type of business model, which requires specific collection processes, adapted to regular collections.
There are 3 forms :
- Simple recurring payment without limit of occurrence: periodic payment of a defined sum until termination (subscription).
- Scalable recurring payment : a specific model where the amount to be paid changes (e.g.: subscription with payment based on consumption, freemium, etc.).
- Simple recurring payment with occurrence limit : periodic payment of a defined sum, limited in time (fractional payment).
Two forms of collection
And recurring payments mean direct debits. To avoid customers having to make payments themselves, risking withdrawal or non-payment, direct debit is proving to be the solution for many merchants.
There are two types of direct debits: SEPA Direct Debit (SDD) and bank card direct debits. Although their purpose is the same, their scope and use differ significantly. Here are seven of them:
Setting up sampling
To be valid, a direct debit payment requires the creation and signing of a SEPA mandate, i.e., a contract between the merchant and the payer, which specifies the authorized direct debit conditions. The merchant then collects the necessary customer information (last name, first name, address, IBAN, BIC). Historically, the mandate was sent by paper mail or PDF to the customer for signature. But today, to avoid a break in digital sales processes, some payment providers offer, in addition to collecting debtor information on an online form, the electronic signature of the mandate by SMS code.
A recurring direct debit can also be set up on a bank card. Unlike SEPA, no contract is signed between merchant and cardholder. The payer simply needs to enter the card number (PAN), expiry date and CVV before verifying their identity with the 3D-Secure protocol. The funds will then be captured on the CB, taking into account the defined payment plan.
Effectiveness zone
The SDD is available to all residents of the SEPA zone, which includes 34 countries (the 28 countries of the European Economic Area, plus Andorra, Monaco, San Marino, Switzerland, and the Vatican). It is only available in EURO (€) currency.
Bank card debit works for all customers of the VISA, Mastercard, Cartes Bancaires and American Express card networks, i.e. more than 200 countries worldwide, with each associated ISO currency.
The customer journey
Unlike SEPA direct debits, a bank card debit is immediate. With a credit card debit, the payment service provider captures the funds instantly and then has the funds available on D+1, allowing the merchant to deliver their product or make their service available immediately. The card payment route is considered more affordable and familiar to consumers.
With SEPA direct debits, several days may elapse between the direct debit execution request and the transfer of funds to the debtor’s account. This usually takes 3 to 4 working days, which can make it difficult to deliver the service or organize the merchant.
Levy ceiling
Payment by direct debit is not subject to any maximum limit set by the payer’s bank. However, for bank cards, a payment limit is set depending on the type of card used (personal or business) and its options (weekly/monthly threshold, payment abroad, etc.). Therefore, it is preferable to let the payer choose their direct debit date, depending on the capacity of their card.
Expiry date
Bank cards are generally valid for 2 to 3 years. As a result, bank card charges are directly impacted by the lifespan of the card, but also by unforeseen events that may occur (damaged card, cancellation, etc.).
A SEPA direct debit mandate has no expiry date. It is valid until revoked by the debtor. In addition, if no direct debit order has been made within 36 months of signature, it becomes null and void, and therefore unusable.
The costs
A major difference between these two payment methods is their cost. For SEPA direct debit and using a payment service provider, the merchant will have to pay variable service fees depending on the amount of the transaction. If you use a bank, you will have to pay a fixed fee. It should also be noted that additional charges of up to 20 euros may be added in the event of a disputed direct debit. Direct debit attempts are not to be taken lightly.
The cost may be significantly higher for bank card debit. In addition to PSP service fees, card transactions are subject tocard scheme fees. These fees vary depending on the type of card: they are particularly high for “business” or non-domestic cards (outside the French CB network).
Customer complaints
This is a major issue in choosing your recurring payment method. With SEPA direct debits, the payer can dispute and be reimbursed instantly within 8 weeks, for commercial reasons, and within 13 months for “unauthorized transactions”, i.e. invalid or without a mandate.
With a bank card charge, the 3D-S protocol avoids cases of disputes for “transaction not authorized by the cardholder” because the cardholder has authenticated themselves strongly during the first payment. Possible disputes can only be of commercial origin, in the case where the service has not been rendered or the product has not been delivered. The merchant, however, has the possibility of defending himself and providing proof of delivery or use of his service, in order to refute the dispute.
Finally, what form of collection should you choose ?
To determine which recurring payment method is best suited to your business, several factors should be considered :
- Activity: Average amount, desired sales path, habits of target customers.
- Location: Make sure you choose the collection method that is appropriate for the systems in force in the countries and areas you are addressing.
- Potential risks: Particular attention must be paid to the ceilings and expiry dates of the supports.
- Les coûts : Le prélèvement carte bancaire ainsi que SEPA présentent des frais différents en fonction des risques et des charges externes liées à leur utilisation.
Up to you !
