Reduce payment processing costs by converting debit card customers to direct debit

It seems that banks have provided us with new ways to pay bills and withdraw money. First, there’s the paper check, then the credit card, then the ATM card, then the debit card associated with the bank account, and now ACH wire transfer. Naturally, each new payment method entails a new set of costs passed on to account holders and merchants. Savvy businesspeople will weigh each method’s pros and cons in terms of security, accountability, and processing costs, then design their business practices to maximize profits without compromising customer service.

This article will help merchants do this by comparing two very similar payment methods (debit card fees and ACH bank account debit). It will show how converting customers who use debit cards to pay for direct debit transactions can significantly reduce merchant processing costs.

What is a debit card?

A debit card is a card issued by a bank, and the users can use the money in their account to purchase goods or services. A debit card acts like a credit card and is usually associated with a credit card brand (VISA or MasterCard). The difference is that the cardholder’s checking or savings account is debited immediately upon purchase.

What is Instant Payment?

Direct debit is an easy way to debit the payment directly from the customer’s bank account. It uses the premise of paper checks but takes it to a new level through wire transfer. It is not at all necessary to issue paper checks by direct debit. Your customer only allows you to withdraw money directly from their checking or savings account and then transfer it to your account. Direct debit is usually used for automatic recurring billing for regular transactions, such as monthly rent payments, so only one written permission is required to transfer funds. Customers no longer need to issue monthly checks. However, it can also be used with online payment gateways, allowing your customers to purchase products or pay bills directly from a checking or savings account without using a credit or debit card.

What is the difference between a payment card transaction and a direct debit?

The core of debit card transactions and direct debit transactions is the same: each transaction authorizes the transfer of money directly from the cardholder’s account to the merchant’s account. Plus, they are the same from the consumer’s point of view.

However, from a businessman’s perspective, they are very different. Transactions are processed over different networks, and payment processing fees vary widely.

Debit card transactions require merchants to obtain credit card trading accounts and often sign long-term contracts and pay account opening fees. Payment card transactions are processed through the same network as credit card transactions, and funds (minus commissions (called “discount rates”)) are deposited into merchant accounts. The discount rate for debit card purchases is usually lower than the discount rate for credit card purchases (this is because the risk of a bank using a debit card to withdraw money from a bank account immediately is much lower than a credit card). Some trade processors have not provided this discount to their customers. Usually, 2-3% of the transaction plus an application fee of 30 cents is deducted from the debit card payment and the balance deposited into the merchant’s account.

Direct debit transactions use the Automated Clearing House (ACH) network to transfer money from one bank account to another. Therefore, you can use your regular business checking account for direct debit transactions. You must sign a contract with a company with the authority to manage these ACH transactions, but there is usually no long-term commitment. You pay a fee for each direct debit you process, but this is usually a flat fee regardless of the transaction size. (Some companies charge a certain percentage of fees for direct debit transactions – you should avoid these processes!). The cost of each transaction is usually less than $ 1.

How much can a merchant save through direct debit transactions?

Accepting direct debit instead of debit card transactions can save a lot of money for most transactions; a rule of thumb: the larger the transaction amount, the more money the trader saves. The following is a simple example of using PaySimple’s pricing structure:

  • Transaction Amount: $ 500
  • Debit card processing fee (MOTO rate): $ 10.24 ($ 0.29 application fee + 1.99% discount)
  • Fees processed by direct debit: fixed USD 0.55
  • Total savings per transaction: $ 9.69
  • Total Monthly Savings (based on 250 transactions per month): $ 2,422.50
  • Are there any drawbacks to direct debit transactions?

The biggest disadvantage of sellers accepting direct debit is that you don’t immediately know whether there are enough funds in the customer’s account to cover the costs, unlike debit card payments. With direct debit, you receive NSF notifications within 24 hours (much better than a few weeks before banks usually process paper checks). This can be a big problem for merchants who provide goods or one-off services at the payment time. In most cases, however, a notice period of 24 hours is sufficient.

Another problem is that customers are unwilling to give merchants direct access to their bank accounts. But this is basically what they do with pin transactions. Indeed, the problem is more education than safety or process. Fortunately, this is an easily solved problem. is a great website that provides a lot of training materials for customers. Your payment processing company can also provide free marketing and educational materials to distribute to your customers.


Direct debit transactions are just as safe or more secure as debit card transactions. The balance of the direct debit and the debit card is immediately debited from the customer’s account. Direct debit transactions are as easy to perform as bank card transactions and can be used for automatic repeat payments, online payments, phone payments, and point of sale payments. For merchants, however, processing direct debit transactions is much cheaper than processing pin transactions.