Aarish Bhesania 30 May 2022
Direct Debit
✦ A direct debit or direct withdrawal is a financial transaction in which person/business/
merchant/seller/company withdraws funds from another person's bank account.
✦ Before the payer's banker will allow the transaction to take place, the payer must have
advised the bank that they have authorized the payee to directly draw the funds, this
process of authorisation is called a MANDATE.
✦ It is also called pre-authorized debit (PAD) or pre-authorized payment (PAP).
✦ In simple words direct debit is a type of payment in which customers authorise
merchants or organisations to pull funds from their bank accounts, customer gives this
authorisation by creating a Mandate, in paper or electronic form.
✦ Note Direct debit are DIFFERENT from Standing order, Standing order, are
initiated by the payer & involves fixed payment amounts paid at fixed time, while a
Direct Debit lets you pay variable amounts at variable intervals.
Without Direct Debit Each month Jerry will need Bill for Jan = 555
to send a payment manually Bill for Feb = 777
of different amounts
Jan Bill p
ayment = ent = 555
555 Jan Bill paym
Jerrys Bank
= 777
p ayment
= 777 Feb Bill
Feb Bill payment
With Direct Debit Jerry tell’s his bank to authorise Bill for Jan = 555
Tom to withdraw amount upto Bill for Feb = 777
1000 each month, so Jerry doesn’t
have to manually pay the bill.
= 555
ment
l pay
Mand
ate Ja n Bil
777
nt =
me
Jerrys Bank B ill pay
Feb
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Aarish Bhesania 30 May 2022
✦ Merchant sends mandate request , with the max amount , frequency etc to central
mandate bureau.
✦ Mandate bureau forwards mandate request to customer , customer approves the
mandate.
✦ Mandate bureau forwards Mandate ID to Merchant, now whenever merchant needs to
remove money he will use the mandate to receive payment from the customer.
✦ Merchant wants to receive money of 100 rs from Customer Jerry.
✦ Merchant sends mandate ID and amount to Mandate bureau.
✦ Mandate bureau checks the validity of mandate and other mandate rules after successful
checks it forwards request to customers bank.
✦ Customers bank sends the amount to mandate bureau, Mandate bureau forwards it to
merchants bank and merchant gets his bill payment, Jerry does no manual action apart
from approving the mandate.
Merchant’s bank Customers bank
8.S
en aym
ds en
p
,re t .
6.Initiate ,requested
nt.
qu
9.Credits ,requested
ou
es
am
payment to Tom.
ted
amount .
ed
est
u
5. Approved Mandate,
eq
sr
with amount .
nd
Se
7.
4. Approved 3.Mandate
Mandate. approved.
Merchant Direct Customer
Debit
Regulator
1.Sends Mandate request. 2.Mandate request.
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Aarish Bhesania 30 May 2022
Direct Debit Used for
✦ Direct Debit are best used when Amount, Frequency or the Time of payment is
Unknown or Varys every time.
✦ Regular payments of variable or fixed amounts like mortgage payments, utility bills or
other bills based on usage.
✦ Phone bill payments, since bill amount may vary as per usage it can be used with
ease.
✦ Electricity bill, Gas bill, since bill amount may vary as per usage it can be used with
ease.
✦ IPO Application, sine we may or may not get IPO allotment so we can use Direct
Debit as it Varys.
✦ Credit card bill auto payment, since bill amount Varys we can use Direct Debit for it.
Direct Debit Used For
Phone Bill Electricity Bill Credit card Bill IPO Application
As the customer,
As the bill amount may vary each
may or may not get
month as per customers usage.
IPO allotment.
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