Guide to the Electronic Payment Alternatives to Cheque Acceptance
This document has been prepared by the Programme Office of the National Payments Plan for the purpose of informing interested parties about payments and is for guidance purposes only. Terms and conditions should be confirmed with the relevant bank or payment service provider.
Background
e-Day, September 19th 2014, is the date from which public sector bodies in Ireland will no longer use cheques in their dealings with businesses. For outward
payments, e.g. to suppliers, this can be almost universally catered for by the use of EFT (Electronic Funds Transfer), i.e. the supplier provides bank details and the payment is made electronically to that account. For public sector bodies accepting or in receipt of payments, this can be more complicated as in many circumstances ad hoc inwards payments to bank accounts can cause significant reconciliation difficulties for recipients. This Guide outlines the relative suitability of the various electronic payment alternatives to cheques as they apply in different circumstances.
Scope
Inward payments are covered here, outward payments, which can be made almost universally by EFT (instead of cheques), are not. The focus here is on business cheque usage, as this is the focus of e-Day, though recognising that many public sector bodies deal with both consumers and businesses. Pricing by banks and other payment services providers is also out of scope.
There are effectively only three core forms of electronic payment that represent potential alternatives to accepting cheques, namely EFT, direct debit (Single Debit Authority and Direct Debits) and payment cards (credit and debit) and these are covered here. Other forms of electronic payments (which tend to rely on one or more of the aforementioned) such as PayPal, pay by Amazon, Facebook Credits, Realex Fire etc. are not covered. Pre-paid cards are also excluded here as their use is not widespread in Ireland and for the purpose of this Guide can be treated as debit cards (from a payment acceptance perspective).
Costs
While pricing is outside of the scope of this document, most of not all of the banks and other payment services providers have comprehensive information available on their websites. Public Sector bodies may also be in the position to agreed specific terms and conditions with their bank or payment services provider.
Payment Types
EFT Direct Debits Payment Cards
Credit Cards Debit Cards
Description EFT (electronic fund
transfer) is an
electronic transfer of value from one bank account to another, typically initiated at the instruction of the payer. As Ireland is now part of SEPA, EFT payments are now
processed as SCTs
(SEPA credit transfers).
A direct debit is a financial transaction where one party (the ‘originator’ or ‘payee’) instructs their bank to withdraw funds from the bank account of another party (the payer). The transaction must be approved in advance by the payer completing a direct debit mandate. Direct debits must comply with the scheme rules, the Sepa Direct Debit (SDD) Scheme in Ireland’s case. Direct debits can be for a single or recurring payment and can be for fixed or variable amounts.
Credit cards allow
cardholders to pay for goods and services availing of credit facilities extended to them by the card issuer.
Debit cards operate in the same way as credit cards except that debit cards access funds that that cardholder currently has available, typically in a bank current account.
Single Debit Recurring Debit
A Single Debit is where a once-off or ‘single-shot’ payment for a specific value is taken from the payer’s account under the SDD scheme rules.
A Recurring Direct Debit is a payment is taken from a payer’s account on a regular basis under the SDD scheme rules. The value may be fixed or variable, depending on what has been mandated by the payer. This is often used for monthly payments such as
mortgages, insurance
policies and utility bills. It is
also used between
businesses e.g. to pay regular suppliers.
Timing D+1, i.e. the following
working day, if
For a Single Debit (One Off Payment) which is in
For Recurring Direct Debits a first presentation must be
Cards payments that are processed and batched by
Cards payments that are processed and batched by
instruction is received before shut-off time, is the latest allowed in the EU (under the PSD).
effect the first only payment mandated by the payer, presentation of the instruction must be with the payer’s bank by D-5.
The earliest value date for a Single Debit will be 5 days after the mandate has been completed and sent to the beneficiary’s (originating) bank.
with the payer’s bank by
D-5, with subsequent
presentations by D-2. The earliest value date for ‘new’ DDs will be 5 days after the mandate has been completed and sent to the beneficiary’s (originating)
bank, with subsequent
payments needing 2
business days.
the acquiring bank’s shut off times, are usually credited to the beneficiary (or merchant) account by the next working day.
the acquiring bank’s shut off times, are usually credited to the beneficiary (or merchant) account by the next working day.
Costs Costs per transaction
tend to be very low compared to paper alternatives. For ‘bulk’
EFT payment files
there may be an element of fixed costs as well as a per transaction charge.
Costs per transaction tend to be very low compared to electronic alternatives. There is usually some element of fixed costs associated with direct debit origination services, as well as a per transaction charge
Credit cards normally attract an ad valorem (% of value) charge per transaction for merchants. Other costs can include a minimum MSC (merchant service charge) and/or card terminal rental.
Debit cards normally attract a relatively low fixed charge
per transaction for
merchants. Other costs can include a minimum MSC (merchant service charge) and/or card terminal rental.
Main Advantages
No set up required – bank details for payer is only information required. Low cost. Pre-reconciled. Low cost. Beneficiary controlled.
Payer does not need to have electronic banking access.
Pre-reconciled. Fast authorisation.
Low risk of payment failure. Gives payer access to credit.
Pre-reconciled.
Low fixed cost per
transaction Fast authorisation.
Payments cannot ‘bounce’.
Can be integrated with online systems. Can be integrated with online
systems. Can be integrated with
online systems.
Potential Disadvantages
Reconciliation
difficulties. If
payments are not
properly referenced, it may be difficult for the beneficiary to establish who has paid for what.
Lead in time for payment. Lead in time for first
payment.
Ad valorem (percentage) fee applies.
Businesses may not have payment card or card may not be suitable for payment e.g. large value payments.
Businesses may not have payment card or card may not be suitable for payment e.g. large value payments.
Other Not likely to work well
where there are large volumes of relatively low value payments.
Very efficient for
relatively high value payments.
SDMT (Same Day
Money Transfer)
service particularly
suitable for high value payments.
Ideal for large volumes of inward payments.
Works for face-to-face as well as online environments.
Ideal where payments are being made by consumers as well as businesses.
Works for face-to-face as well as online environments.
Some Payment Terminology Explained
Acquirer
D+1
This refers to the timing of payments. ‘D’ stands for ‘day’, meaning the day a payment is initiated. +1 then means one business day later. So D+1 means that a payments initiated today, will be settled for value tomorrow (assuming both are business days). D+2 means two working days later and so on. Minus is also used where a payment instruction must be received in advance, for instance with direct debits where the instruction might typically be required two business days in advance which would be D-2.
EFT
Electronic Funds Transfer - any electronic transfer of value, typically to a bank account
MSC
Merchant Service Charge - the charge paid by the merchant to the acquirer for processing payment card transactions
Originator
The beneficiary (payee) of a direct debit payment
SCT
Sepa Credit Transfer - an EFT payment in euro within the SEPA area
SDD
Sepa Direct Debit - a direct debit in euro within the SEPA area
SDMT
Same Day Money Transfer – an individual EFT payment where the value is transferred on the same working day, generally used for high value and urgent payments and typically more expensive than regular EFT payments
SEPA
Single Euro Payments Area – the EU’s payments integration initiative. SEPA currently consists of the 28 EU member states, the four members of the EFTA (Iceland, Liechtenstein, Norway and Switzerland), Monaco and San Marino.
