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Why Direct Debit Is a Dinosaur
December 30, 2013
Recurring debit payments, in which consumers give companies their bank or card account numbers to "pull" money out for regular bills, are a jury-rigged solution for a system built in the 1970s, says consultant Dave Birch. There is no need to replicate this setup in the modernized payment system that the Federal Reserve is nudging banks to create, Birch argues. "Push" payments, which require an active step by the accountholder each and every time, are more secure and easier to manage, he says.

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Comments (3)
Yes and No. Direct debit is a dinosaur, but push will not replace pull bill payments. Lenders that use in-house paper-based auto-debit systems do have higher costs of managing exceptions and do not provide the consumer control demanded by today's consumer. Lenders should migrate their payments from their in-house paper-based auto-debit systems to a mobile and web experience where consumers can control their payment experience. Recent consumer shifts to favor pull (directly at the lender website) and not push (online banking bill pay) are expected to continue. Recently one of the largest mortgage companies in the U.S. shut down their in-house paper-based auto-debit system and seamlessly migrated their customers to a web-based system utilizing a pull setup to pull money out of the consumer's account via ACH. Lenders looking for a solution, can consider http://www.aciworldwide.com/ebpp
Posted by pspradli | Tuesday, December 31 2013 at 1:24PM ET
I don't think direct debit will (or should) be replaced by online bill payment at the bank site. What I imagine will happen is...

1. The cable company sends me the monthly bill.

2. A message pops up on my phone saying cable bill $100 is it OK to pay?

3. I hit yes or put by finger on the home button or whatever,

4. In countries with a faster payment service, there is an immediate FPS push from an account of mine to the cable company account.

5. In the US, my phone uses the Dwolla API to send $100 to the cable company :)

A pull system can't get around the problem that even if an ACH "check available funds" message existed (it doesn't) then there's no way to guarantee that between checking the availability of funds and requesting the pull the account balance can fall. You don't know a direct debit has failed (as a biller) until you get the exceptions file back. A push always succeeds (providing there are available funds) so I suspect the cost of push will remain structurally lower than pull. Pull only exists because of limitations in communications technology.

I might even configure my phone to auto-authorised my cable bill if it is under $100, or auto-authorise my mortgage payment provided it is no more than one per month and is exactly $2625 or whatever.

Posted by dgwbirch | Tuesday, December 31 2013 at 2:25PM ET
We need to look at this from the perspective of the desires of those both making and receiving the payments. The ACH Network's unique ability to offer both debit and credit payments ensures that end-users have options.

While we at NACHA agree that an ACH credit offers significant opportunities and inherent positive attributes, we also know that consumers and businesses alike choose the convenience and simplicity of Direct Payment via ACH, encompassing both ACH debit and credit payments. In fact, a recent study of 1,000 billers nationwide (https://www.nacha.org/node/1400) concluded that Direct Payment via ACH is the leading method consumers use to pay their bills. In addition, billers prefer recurring ACH debit payments, citing this option as the most favorable payment method.

So let's look to the future of payments by defining them in ways that meet end-user needs. The ACH Network will continue to give them what they want: safe, secure and convenient payment options from their financial institutions - both via Direct Debit and Direct Credit Payments.

-- Jan Estep, President and CEO, NACHA

Posted by cmorri | Friday, January 10 2014 at 9:55AM ET
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