According to the 2019 Nielsen Payment Landscape report, two in three Malaysians have gone cashless with 57% of the population utilising online banking, and only 27% have opted to use credit cards to pay for their expenses.
There is no denying that when it comes to accepting and processing payments, payment gateways such as PayPal and Stripe have been the de facto solution for business owners. However, with the rise of the subscription economy and the shift towards payment digitisation, many more viable options for processing recurring payments such as Direct Debit have surfaced in the market.
So, whether you are a new business looking to set up a new payment system, or if you are a regular business planning to switch up your payment providers, any changes you make to the payment methods makes that much of a difference from having to make a successful sale, to losing that particular customer to another merchant due to payment preference issues.
In this article, we will shed some light on Direct Debit vs. Payment Gateways along with their differences, benefits as well as disadvantages to help you narrow down your choice to best suit your business needs.
What Is It And How Does It Work?
Let’s start off with payment gateways. A payment gateway is a conduit between the customer and the merchant that processes credit card payments for businesses. A virtual service that collects credit card information securely, stores it, and routes it to a payment processor every time a transaction needs to be made. As a Third Party Acquirer (TPA), the proceeds of your transactions will be received on your behalf before the funds are directed to your bank account in batches over a certain period of time.
On the other hand, and contrary to popular belief, Direct Debit is not a payment gateway, but is categorised as a payment solution that allows businesses to pull payments directly from their customers’ bank account. It is the easiest way for businesses to receive regular or recurring payments from a customer. By filling out a one-time online eMandate form, the customer gives permission for the business to collect payments directly from their account when it is due. Unlike traditional TPAs, settlement happens solely between the buyer’s bank and the seller’s bank, and the funds will go directly into the merchant’s bank account.
So, while there are plenty of payment solutions in the market, there is no one solution that fits all. What is less clear for people for the most part are the ins-and-outs related to each of these concepts, and how choosing and configuring them can impact your business.
Distinguishing The Key Differences
Which one is better?
With all that is being said, the answer to this question boils down to the 3 important differentiations below that could make or break your business.
Flexibility - Utilising a subscription model is more than just charging the same fees to the same customers over a certain period of time. You should also take into consideration of having a payment provider that supports a variety of package plans, to offer not only a variety of billing cycles but with flexible time periods and multiple pricing levels as well to improve customer retention.
Settlement/Payout policy - While some payouts are performed on the same day, others may be performed in batches and could take multiple days before it is successfully transacted into your account. Find a solution that will ensure that you receive the payments on time so that you are able to predict your cash flow.
Reporting - Whether you want to see a single transaction or analyze trends for an entire portfolio, reporting gives you real-time visibility into your transactions. You would want a solution that provides not only daily transaction reports, but also specialised ones such as settlement report, payment modes report, unsettled/failed transactions report, etc.
In any case, both Direct Debit and Payment Gateway solutions offer services beyond payment processing. However, if your plan is to collect recurring payments, then the advantages are obvious. While payment gateways provide options for recurring subscriptions, credit card payments often expire and lead to high level of churn. So, if you are a subscription-based business utilising credit card payments, you might want to rethink your strategy on this.
How Does Curlec Stand Out?
As the only payment solutions provider that utilises online Direct Debit in Malaysia, Curlec creates a seamless payment experience that enables you to get paid on time, every time via Direct Debit and Instant Pay (FPX).
Curlec’s simplicity makes a powerful platform for businesses of all shapes and sizes as the system is designed to save you time and manual administrative work, allowing you to focus on growing your business. Hence, putting you, the merchants in control of your own cash flow.
Want to talk to us about swapping your current payment solution provider to Curlec? Contact us below and we will get in touch soon!