What is Direct Debit? [Banking Awareness Notes]

 

Dear Aspirants,

As you’re all aware, there are a number of bank exams coming up and ‘Banking Awareness’ is an integral part of these exams. In the following article, we will briefly discuss about one of the banking awareness topics; Direct debit:

 

What is Direct Debit?

Direct Debit refers to a type of agreement with a bank that allows a third-party to transfer money from the account of the payer to the payee on agreed date(s). The payer needs to be informed about the payment in advance. Direct debit is the most convenient way to pay regular bills. It is also called ‘pre-authorized debit’ or ‘direct withdrawal payment’.

 

Some important pointers about direct debit:

• Direct debit feature makes transactions convenient for both the payee and payer

• Direct debit gives the authority to payees to collect payments from payers accounts when they’re due

• Post-authorization, organizations can automatically transfer payments

• Direct debit is used for recurring payments, such as credit card payments, and various types of bills

• Direct debit is also used for transactions held online, mail order transactions and point of sale

• The payer is authorized to stop the transaction any time by instructing the bank to do so

• Payments in direct debit vary from time to time

• Frequency of payments in direct debit are changed from time to time

• The administration fee for direct debit is low

• Direct debit is a fast process & efficient process

• If there’s failure of payment, the payee gets a notification directly

• Direct debit is complex in nature

 

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What are the advantages of direct debit?

• Since direct debit is pre-authorized, there’s no need to worry about remembering payment which saves precious time & energy

• Direct debit is secure, safe and guaranteed

• There’s no penalty for late payment under direct debit

• Helps you even out bills or recurring costs over a period

• If the money gets credited in someone else’s account, the bank will pay back in your account

• Many businesses offer cash back offers if you pay them using direct debit

• Bills are paid on time and there’s no worry of incurring late payment charges

 

We hope the above gives you a brief idea about direct debit. Download this article as a PDF to use it as a handy guide for your preparation.

 

Further reading:

What is inflation?

What is Financial Inclusion?

What is Green Banking?