Genome’s team is back with yet another article that dives into different types of fraudulent financial situations that people and businesses can face. And this time, card-not-present fraud is on the agenda. Want to know how to avoid scams associated with card-not-present transactions? We gathered some tips below. What is a card-not-present transaction? Before we get to the fraud part, let us first explain what card-not-present transactions are in general. Card-not-present transactions (also known as CNP transactions) are the type of payments a person makes with their debit or credit card. Such payments happen remotely, meaning that the card and
Are you confused and wondering what payment option will satisfy your needs? Still cannot figure out the differences between direct debits and standing orders? Dive into Genome‘s in-depth guide on automated transactions and make the decision that will work best for you.
What is a standing order?
Standing orders are regular pre-automated payments for the set amounts. Monthly gym payments or subscriptions are great examples. If you’re providing your services as a sole proprietor or freelancer and the sum is the same every time, your clients can pay for the work done by setting up a standing order. If you’ve chosen standing orders as the best payment method for you, it means that you’re the one in charge of setting up and sending funds, not the receiver.
What is a direct debit?
Just like a standing order, direct debit is a type of pre-automated transaction. However, few important factors make these payments different. Direct debits are regular transactions but not for a fixed amount of money. The sum can vary, depending on what you’re paying for.
For instance, direct debits are often used to pay bills. We all know that electricity bills are not the same each month and can fluctuate. That’s why direct debit payment is an efficient solution here, as your creditor can change the sum of the transaction whenever it is needed (they also need to send a notice of amendments at least 10 business days before the transaction’s due date).
How standing orders work
To understand standing orders better, we will talk about the funds movement that happens within this transaction. When making standing order payments, you instruct your PSP to wire money from your account to your creditor’s account. In other words, these are the regular payments from your side with the help of your financial provider.
In this case, the creditor has nothing to do with making such transactions and can only rely on its customers to set everything up correctly and move funds.
How direct debits work
Direct debit payments, on the contrary, are under the control of creditors. It’s the receiver who decides how often and how much they are charging you. Undoubtedly, they have to let you know beforehand about any changes with transactions (usually, within 10 working days before the funds are withdrawn).
Therefore, when you set up direct debits, you instruct your PSP to let the creditor move funds from your bank account to their bank account accordingly, with the help of their PSP.
Standing order vs. direct debit
Let’s go over the crucial differences between direct debit and standing order payments. For this, we’ve prepared a concise table:
|Standing order||Direct debit|
|Setup||The payer should fill in the standing order mandate|
Can only be done by payer via mobile banking or contacting the financial provider directly
Payer defines the amount and frequency of transactions
|The payer should fill in direct debit mandate after they receive it from their creditor and send it back (by email or in the post)|
It’s the creditor that establishes the frequency and amounts of transactions, but they have to warn payers about any changes
|Time to be delivered||Can take a few business days, but are generally processed faster than direct debits||Can take a few working days.|
|Charges||Generally free, depends on your PSP||Payer often receives a discount from a creditor for using direct debit payments|
|Amount of transaction||Is stable, can only be changed during setup. If you want to send a different amount by standing orders, you should delete the current standing order payment scheme and create a new one, with a new sum||Can be adjusted for every payment but only by the creditor. They have to notify the payer within 10 business days before the transaction’s due date|
|Frequency||The payer chooses how often transactions will happen during setup. Can be weekly, monthly, etc. You can also decide to send standing orders for the next few months only, for example||Direct debits can be the same as standing orders when it comes to frequency, but everything is set up by the creditor (you should double-check all information and conditions while signing a mandate)|
|Who has more control||Payer||Creditor|
|Safety||Considerably low. Once a standing order payment is sent, there are no guarantees you will receive the funds back|
On the other side of the coin, creditors are at risk because they are totally relying on customers to initiate standing orders in a correct and timely manner
|High. If you’ve been charged by mistake or for the wrong amount, your financial provider is obliged to return your money under the Direct Debit Guarantee|
|Funds are taken from||Payer’s bank account||Payer’s bank account|
How to set up standing orders and direct debits?
To start sending standing order payments, you need to set them up on your own. No worries, a proverb “easier said than done” has nothing to do with standing orders setup. Indeed, it only takes a few minutes if you have all the required information.
Usually, you’d only need the receiver’s bank account details and the amount for the regular transactions. For more information on account details, check our blog post: “What’s an IBAN number”.
The next thing you do is go to your mobile banking app (either mobile or web). After finding the feature “Standing orders” (if supported by your PSP), you will have to fill in the mandate. It’s a form including all the details on your standing order payments (frequency, receiver’s details, amount, etc.). After submitting this form, your standing orders should be activated.
One more way to set up these regular transactions is to contact your bank. You can do this via chat/call/visit to a branch. They will also ask you to provide details for the mandate form and will initiate payments on your behalf.
Direct debit payments can be set up after you inform the creditor that you’ve chosen this paying method for their services. In the next step, you should receive a direct debit mandate from the creditor. This is a form with the details of your deal including the frequency of payments, the sums, and other conditions. You do not have to fill anything in, but only sign it up and send it back.
It’s you who decides how to contact your creditor: via email, by phone, or by sending letters. The same goes for receiving a direct debit mandate. Once direct debit payments are approved by two sides, you should receive a notification that everything should be working now. Moreover, the financial providers from both sides are notified as well and are in charge of arranging smooth and timely funds movement from one bank account to another.
Are direct debits and standing orders safe?
Both payments are considerably safe. However, as they are quite different, you should pay attention to the next factors:
- Standing order payments are initiated by the senders. It means that you’re the one in charge of filling in the correct amount. However, once the money leaves your account, you can’t get it back. Make sure that your standing orders have proper settings (especially when it comes to the sums and duration of transactions). You can also contact the receiver and ask them to wire funds back if you sent them by mistake.
- Direct debits are much safer. First of all, your creditor is obliged to notify you beforehand in case of any changes in payments (sum, due date, etc.). Secondly, under the Direct Debit Guarantee, your PSP will return the funds if the creditor charged your account incorrectly or for the wrong amount.
How to cancel a direct debit or standing order?
A standing order payment is a transaction that you initiate on your own. That is why you can call it off anytime. For this, you can use your mobile banking app or reach out to the PSP. You can also stop and start standing orders anytime.
With direct debits, you need to contact your financial provider and inform them about the cancellation. They will ask you for such information as the creditor’s name and bank account details, the date, and the sum of the last payment, etc. Then, they will notify your creditor and will do the rest. It can take some days to stop the whole process. For more information on cancelling direct debit payments, check our article How to cancel a direct debit?
How to dispute a direct debit?
Just like with all the issues regarding direct debits, you need to contact your bank to dispute them. Evidence of the wrong transaction can be required. After that, the bank will consider the case and make a decision.
Only a small amount of direct debit payments are refunded because mistakes in such transactions are quite rare. The immediate reImbursement of funds (in case they were withdrawn from your account erroneously) from the bank is called an indemnity claim.
Does a direct debit or a standing order suit your business best?
Standing orders are best for small businesses/companies with up to 25-30 clients. If you have trustworthy relationships with your customers, you can rely on them to set up these regular payments. Moreover, it’s easier to process and track a smaller number of transactions.
Direct debits, on the contrary, are better suited for a larger number of payments. That’s why they work perfectly well for big companies and enterprises.
Remember that standing order does not count as direct debit, because their mechanisms of work vary. However, both can be used for one-off payments too.
How can we help?
If you’re still not sure whether standing orders and direct debits are the convenient payment methods for you, you can also look into making instant and free internal transfers with Genome. All Genome users can make transactions to each other in different currencies. The funds will appear in the account immediately and there are no charges. With Genome, you can also use SEPA and SWIFT for international and domestic transfers.
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What are the disadvantages of standing order?
Standing orders are not very flexible. If you do not have enough funds in your account for a successful transaction, a fee can be applied for a failure. In addition, if you want to make some changes in payments, you need to cancel the current standing order and set up a new one from scratch.
What are the disadvantages of direct debit?
The same goes for direct debit payments. If there’s a lack of money in your account to cover the transaction, your bank may apply a fee.
When should I use a standing order?
Standing orders work best if you need to make regular payments for fixed amounts of money. Also, if you wanna be in control of the sum and frequency of such transactions, a standing order is a great solution for you because you set it up on your own.
When should I use direct debit?
Direct debits come in handy for regular payments with fluctuating amounts, such as electricity bills.