Direct Debit Vs Continuous Authority - Birchills Blog
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Direct Debit Vs Continuous Authority

Direct Debit Vs Continuous Authority illustrated by handshake with sterling bank notes

Why Customers Should Choose Direct Debit

Direct Debit and Continuous Payment Authority card payments are the most common methods for taking regular payments. Both enable companies to take payments from customers easily but which is better for your customer?

 
WHAT ACTUALLY ARE THEY?

CPA and Direct Debit are both automatic payment methods.

A Continuous Payment Authority (CPA) is an authorisation given by a customer for you to take payments from them by credit or debit card. Payments can vary in frequency and amount. (Other names for CPA include "recurring transactions”,"continuous card payments", ”recurring payments”,  “continuous authority transactions” and  “guaranteed payments”.) There are 2     large providers World Pay and Pay Pal. CPA payments are taken by credit or debit card. Customers must supply their 16 digit card number

A Direct Debit is an authorisation from a customer that enables you to take payments from their bank account. These payments can also vary in frequency and amount. Direct Debit payments are taken directly from a customer’s bank account. Customers sign up to the Direct Debit using their bank account number and sort code.


DIRECT COMPARISON

SET UP             

DD Customers complete a Direct Debit Mandate form online, by paper or over the phone using their bank account number and sort code.
CPA Customers sign up using their credit or debit   card number by phone, online or in person.
           
COST PER PAYMENT

DD Low. About 20 - 40p or 1% per transaction, depending on provider.        
CPA High. Typically around 3% + 20p per payment plus a monthly fee for a merchant account.
           
FAILURE RATES

DD Very low. < 1% . This is much better for customer retention.        
CPA High. c. 5% due to credit card expiry and cancellation.
         
FLEXIBILITY OF PAYMENTS

DD High. You can collect variable amounts or change the amount or date of payments without asking customers for further authorisation.        
CPA High. You can collect variable amounts or change the amount or date of payments without asking customers for further authorisation
 
RISK OF LATE PAYMENT

DD Low. You can charge customers when a payment is due.        
CPA Low. You can charge customers when the payment is due.

ADMINISTRATION REQUIRED          

DD Low. Uses bank details which rarely expire or are cancelled so churn is much lower.

CPA Medium. Customers need to update their details when cards expire or are cancelled. Expect this to happen at least every 3 years per customer.

CUSTOMER PROTECTION

DD High. Immediate refunds from bank with no time limit in the event of an incorrect charge.        
CPA Medium. Chargebacks are possible with credit cards.
WHCH SHOULD YOUR CUSTOMERS CHOOSE?

CPAs and Direct Debit can both be used for recurring payments, including those which vary in amount and frequency.
CPAs offer many similar benefits to Direct Debit but suffer from higher failure rates due to card expiry and cancellation. This is a bad experience for customers. It creates unnecessary work for them having to update their details and they may even decide to let their payments lapse to avoid the hassle. By contrast, Direct Debit payments use a customer’s bank details, which rarely expire or change.

From the customer point of view they get:

  • Lower payment failure rates
  • Lower cost
  • Higher guarantees
  • Simpler maintenance

And that means Direct Debit is a win every time!
COMMENTS

Thalia Anne Daniels - 02.11 - 05/02/2018
CPAs offer many similar benefits to Direct Debit but suffer from higher failure rates due to card expiry and cancellation. This is a bad experience for your customers. It creates unnecessary work for them having to update their details and they may even decide to let their payments lapse to avoid the hassle. By contrast, Direct Debit payments use a customer’s bank details, which rarely expire or change.

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