Fraud Blocker
Direct Debit Use Cases in Fintech Financial Service

Direct Debit Use Cases in Fintech Financial Service

February 6, 2022

Small, medium, and big fintech companies are in need of a fast and reliable way to collect payments, although the world is not in shortage of payment methods. The financial technology ecosystem embraces a new solution that is deemed to be a solution to late payments, especially for businesses or firms that offer products or services with recurring bills. Especially useful to businesses that offer products or services with recurring bills such as blockchain, cryptocurrency, peer-to-peer lending, Insurtech and investment. Read on to learn how direct debit can help your fintech business collect payments on time!

How Fintech evolved direct debit in 2022?

Indonesians are more familiar with the term “auto debit,” another term to direct debit. The name already suggests what direct debit is—a concept where you authorize someone to collect payment directly from your bank account on a specific date.

Direct debit has been a hit in the UK, with 4.6 billion direct debit transactions processed in 2021. The consensus also reports that 86% of Brits have at least one direct debit. While it’s a relatively new concept in Asia, direct debit system has gained a positive reputation across the globe.

The direct debit payment is consensual and doesn’t require customers to pay any hidden fees. Most people liken it to a credit card without the need to borrow money from a bank. How do you give direct debit authorization to fintech companies? The details may differ, but you may be required to fill in a mandate form online or offline.

Several banks have simplified the process by partnering with merchants and e-commerce sites. This allows customers to do a one-time registration by entering the debit card number, card expiration date, and verification code sent to email/text message. Once authorized, the merchant or company can take payment from your account when it’s due.

What is Direct Debit?

Direct Debit is a system that allows you to authorize a company to collect payments directly from your bank account. This means that you don't have to remember to make payments yourself, and you can avoid late fees.

To set up a Direct Debit, you will need to provide the company with your bank account information. They will then send you a Direct Debit Instruction Form, which you will need to sign and return. Once the form is processed, the company will be able to collect payments from your account on a regular basis.

There are many benefits to using Direct Debit. It is a convenient way to pay bills, and it can help you to avoid late fees. Direct Debit is also a secure way to pay bills, as your bank account information is not shared with the company.

If you are looking for a convenient and secure way to pay bills, Direct Debit is a great option.

How does direct debit work?

If you’re running a business or fintech startup and planning to set up a direct debit service, first contact your local financial institution of your choosing. Note that not all financial advisors offer direct debit. Once you know which banks offer this type of service, you must get authorization from your customers.

For financial advice or good business practice, send an invoice or payment notice a few days a week before the due date. This will prevent customers from panicking when they notice a sum of money was withdrawn from their account. If customers have multiple bank accounts, the notice will give them a reminder to check if their account has a sufficient balance.

In this process, the business owner is the one who initiates the direct debit payment, not the customers. When authorized to the direct debit bureau, check if the transaction nominal matches the notice you have sent to customers. The payment processing will take around three to five working days.

Since there are more banks than your fingers can count, it will take ages to negotiate regulations and register your business for a direct debit payment one by one. Granted, it’s not totally impossible. You can imagine the time, energy, and money spent on the very first step of setting up a direct debit.

Fortunately, the open finance API has made this easier, just like how Ayoconnect’s Direct Debit API is connected to Indonesia’s top banks such as BRI, Bank Mandiri, BNI, CIMB Niaga, Danamon, Bank Neo Commerce, and Bank Syariah Indonesia. These partner banks can now access their own direct debit services on one open API, which helps shorten the authorization process.

Many advantages of direct debit for businesses

It’s a fact that this type of automated payment can benefit customers. They no longer have to set reminders for recurring bill payments or do bank transfers. But what are the benefits of direct debit for businesses? Let’s take a look:

1. Trustworthiness

The bank will closely monitor any business that takes payments via direct debit products. Not without reasons; the bank needs to make sure that the payment is as agreed by the customer. Customers will see your business as sophisticated and transparent when you offer them the direct debit option.

2. No more pending invoices

Fintech financial services like invoice financing have blossomed because pending invoices are a very common problem in business. Even major corporations know the struggle. Lending businesses in Indonesia, for example, are recorded to experience a 3% loan default rate. Direct debit allows customers to pay their invoices in time. So your business doesn’t have to handle any late payments, which guarantees a smoother cash flow.

3. Low failure rate

Payment failure due to rejected credit cards happens too frequently. In fact, credit card transactions have a 5% to 8% failure rate. This is relatively high compared to direct debit payments, with a failure rate of 2.2%.

Direct debit use cases in fintech financial services

The wave of direct debit is here in Indonesia. Several major fintech financial services and digital companies have adapted to this payment method.

In Indonesia, although there are many banking products related to direct debit, not all people know about it. In developed countries like the US or UK, most Internet users have started using this payment method. In fact, in the United Kingdom, there are more than 70 million accounts that use Direct Debit for various purposes, including financial planning, utility bills, and taxes. One advantage of this payment system is that you can automatically pay your bills without having to remember each month. This can help you avoid late fees or fines on your account that cause a loss of money.

For fintech companies who want to adapt direct debit to their financial products and services, they need a service provider partner like Ayoconnect that supports direct debit transactions.

1. Milvik Indonesia

As a telehealth company in Indonesia that sells subscription packages, Milvik uses Ayoconnect’s API to integrate its website, personal data, and app with its direct debit service. Customers can easily pay for their monthly subscriptions. For Milvik, utilizing open API to provide a direct debit payment method has saved them resources to collect funds from multiple bank accounts at once.

2. GoTrade

Time is a valuable asset for investors and traders. GoTrade fintech innovation understood how its customers wanted a faster way to deposit money into their GoTrade accounts. With Ayoconnect’s API, GoTrade has launched its automated top-up service.

3. BRI and Bank Mandiri

These two banks partner up with Ayoconnect fintechs to increase financial inclusion by offering direct debit payments. Now, their customers can make payments without having to do bank transfers or move to another mobile fintech application. This payment method also allows their customers to make large transactions more efficiently. Bank Mandiri reported processing Rp5 billion in transactions a month after launching its direct debit service.

Ayoconnect can help you enable direct debit payments

Direct debit is a simple payment method for customers, giving businesses total control over recurring payments. Help companies that sell subscription-based products or services like utilities, the internet, streaming platforms, insurance, online commodities, and even investments can reap the advantages of having a direct debit payment service.

If you’re worried about the infrastructure and investment needed to build, let alone operate this payment method, Ayoconnect is here to help financial institutions. Its open API is already connected to six major banks in Indonesia and is trusted by many fintech services. You only need to do a one-time integration. Schedule your demo with Ayoconnect now!