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What is direct debit?
Direct debit, or direct withdrawal, is a financial transaction in which a person or company is permitted to withdraw funds from another’s bank account. It is also called pre-authorized debit (PAD) or pre-authorized payment (PAP). At a point of sale, this often takes the form of a customer using a debit card to pay while confirming with his or her signature, and in online retail it is accomplished by clicking to confirm the purchase of a shopping basket’s contents. The sum is then automatically withdrawn from the buyer’s bank account, with a certain time delay, and credited to the recipient’s account. A SEPA direct debit can only be executed once, while other forms of direct debit are commonly used for recurring payments such as credit card and utility bills.
Advantages and disadvantages of direct debit
The system has both advantages and disadvantages for merchants. On the one hand, it enables fast payment with minimal fees. On the other, no check is made to verify that sufficient funds are available in the payer’s account. In the German Girocard system, which requires the buyer to confirm a purchase by entering a PIN, a check is performed.