However, when the authorization is in place, the circumstances in which the funds are drawn as well as the dates and amounts are a matter of agreement between the payee and payer, with which the bankers are not concerned.
[2] In countries where setting up authorization is easy enough, direct debits can also be used for irregular payments, such as for mail order transactions or at a point of sale.
Direct debits are available in a number of countries, including the United Kingdom, Brazil, Germany, Italy, Netherlands, South Africa, Spain, Sweden and Switzerland.
An exception in this respect is the Single Euro Payments Area (SEPA) which allows for Euro-denominated cross-border (and domestic) direct debits since November 2010.
Alastair Hanton, a British banker and maths graduate, found that traditional banking methods of paying in cheques were incredibly costly.
[3] A direct debit instruction must in all cases be supported by some sort of authorization for the payee to collect funds from the payer's account.
In that event, the payee has to pay all fees for the transaction and may eventually lose his or her ability to initiate direct debits if this occurs too often.
However, it still requires all the account holders (not merely the payer) to watch statements and request returns if necessary, unless they have instructed their bank to block all direct debits.
This instruction contains bank-approved wording that makes it clear the payer is setting up an ongoing authority for the merchant to debit their account.
The interface for completing the Direct Debit Instruction is controlled by the merchant, who then sends the data from the form to the customer's bank, via Bacs.
[16] Under the guarantee a payer is entitled to a full and immediate refund in the event of an error in the payment of a Direct Debit from their account.
[citation needed] Any direct debit instruction that has not been used to collect funds for over 13 months is automatically cancelled by the customer's bank[20] (this is known as a "dormancy period").
However, the problem is exacerbated by some of the banks themselves for failing to implement any controls which prevent companies or fraudsters taking money from business and consumer accounts.
[22] The problem of cancelled and obsolete direct debits being wrongfully revived or re-implemented is estimated to cost UK consumers £385 million in 2010.
Although no specific figures were collected it appears a substantial number of people lose considerable amounts of money annually because the obsolete direct debit is neither noticed nor recovered.
[23] On 7 January 2008, Jeremy Clarkson found himself the subject of direct debit fraud after publishing his bank account and sort code details in his column in The Sun to make the point that public concern over the 2007 UK child benefit data scandal was unnecessary.
There are only four recognised companies in the UK providing Bacs accredited training: Accountis (D+H), Bottomline Technologies, Clear Direct Debit and allpay.
PADs work over a computerized network through Payment Canada's federally-secured Automated Clearing Settlement System (ACSS).
[27] In Germany, banks generally have been providing direct debit (elektronisches Lastschriftverfahren (ELV), "Lastschrift", Bankeinzug) using both methods since the advent of so-called Giro accounts in the 1950s.
Compared to payments by credit cards, which allow similar usage, bank fees for successful collections are much lower.
Often retailers such as supermarkets will process Girocards as direct debit (ELV) transactions after performing a real-time risk analysis when the card is swiped.
There have also been cases of fraudulent direct debit where the defrauders tried to collect very small individual sums from large numbers of accounts, in the hope that most account holders would be slow to raise an issue about such small sums, giving the defrauders enough time to withdraw the collected money and disappear.
In the Netherlands, as in Germany, an account holder can authorize a company to collect direct debit payments, without notifying the bank.
Another security measure is a "selective block" whereby the customer can instruct the bank to disallow direct debits to a specified account number.
In Poland, direct debit is operated by KIR (Krajowa Izba Rozliczeniowa) and participating banks as one of the functionalities of the Elixir[30] clearing system.
Direct debit is also an option for paying utility bills, alongside bank transfers and credit card payments.
Direct debit in Nigeria, is powered principally by the Nigerian Interbank Settlement System (NIBSS) and Remita Payment Services Limited.
Remita direct debit is paper based and requires that the payer or the merchant takes the mandate to their banks for processing.
Many smaller companies do not have direct debit facilities themselves, and a third-party payment service must be used to interface between the biller and the customer's bank.
[citation needed] In Turkey, direct debits are widely used, for utility and credit card payments, as well as commercial transactions.