The Direct Debit scheme also known as payment by installments is an arrangement between a bank and a customer in which the bank is given written authorization (mandate) to automatically debit a customer’s account to pay a creditor or service provider based on a fixed schedule of payments or invoiced amounts.
Direct Debit is the simplest, safest and convenient way to make regular or recurring payment. With Direct Debit, the individual knows all important bills will be paid on time.
In the 2015 edition of the World Payments Report, Direct debit was identified as one of the rapidly growing non-cash payment alternatives globally for utilities, insurance premiums and tax payments. It remains a critical collections instrument in most developed markets; and has become an instrument of choice for regular bill payments.
Direct debit in Ghana was initially intra-bank whereby Service Providers opened accounts and collected payments from clients within the same bank.
This intra-bank direct debit was fraught with many challenges i.e.
- Multiple accounts with different banks were required.
- Managing multiple banks was cumbersome and expensive.
- The process was mainly manual.
- Reconciliation challenges.
- Payment across different banks (Interbank Payment) was not possible.
In 2012, the Ghana Interbank Payment and Settlement systems (GhIPSS) implemented the Automated Clearing House Direct Debit (ACH DIRECT DEBIT) interbank service; an automated process for making payments and collections across banks. This service eliminated the extensive reconciliation Service Providers needed to undertake as a result of transactions and accounts within the several banks. The Interbank Direct Debit also increased the variety of interbank payment options, speeded up the payment process by providing choice and convenience for the consumer and modernized the payment systems in Ghana by bringing it in line with payment trends worldwide, which is a general shift to imageless, low risk “debit pull‟ instruments.
The economies of developed countries across the world are consumer driven and the effective working of the direct debit scheme is the main vehicle that affords consumers the opportunity in these countries to purchase and pay for items over time. The impact of the effective working of the direct debit scheme on these countries has been absolutely monumental on the finances of the consumer, the business industry, the banking industry and the economy.
Adopted appropriately by all participants with all the safeguard and measures, Direct Debit has a huge potential to greatly transform the economy of Ghana, the standard of living of the consumer, the growth of businesses and the finances of the banking industry.
POTENTIAL IMPACT OF DIRECT DEBIT IN GHANA
The Consumer:
- ACH Direct Debit gives consumers an efficient and safe means of financing goods and services by paying in installments instead of full cash payment. The opportunity to spread payments over long periods, increases individual available disposal income and in turn leads to improved standards of living. Direct Debit can also be used by businesses and banks to derive credit ratings and thus enable consumers’ access cheaper loans.
The Business industry:
- Collecting payments through Direct Debit enable businesses attract more customers, most of whom would be unable to afford full cash payments. Businesses are also assured of receiving their funds timely as funds are transferred to the business via interbank settlement. The Direct Debit scheme affords businesses the ability to better plan and make projections based on guaranteed payments. The scheme being a low cost scheme gives businesses improved control over payments, better accounting efficiency and an electronic audit trail of all transactions. Furthermore, information on customer payment trends can be used to derive credit rating and thus inform decisions on lending. Increased business would invariably create more jobs and increase income.
The Banking industry:
- Direct Debit as a value added service would generate float for banks. Additionally, the Direct Debit scheme enables banks avail their customers a safe and convenient payment option. The scheme can also serve as a database on consumer borrowing and repayment and can therefore be used to build trends, credit scoring and inform bank lending rates.
The Economy:
- Direct Debit as a key driver of economic growth; growth of businesses would increase Government revenue from VAT, Import Duty and profit tax. Furthermore, data from DIRECT DEBIT payments could serve as a good medium of tracking national income and expenditure patterns and thus inform Government budgeting, spending for developments.
By Kofi Amoah
