How to get your loans repaid with Direct Debit

Direct debit (DD) is rapidly becoming a preferred method for loan repayments among lenders. In a recent webinar, Grace Effiom, Head of Enterprise at Lendsqr, sat down with Unyime Tommy, the CEO and Managing Partner of Assurdly, to discuss the fundamentals of direct debit and its benefits for lenders. This blog post summarizes their insightful conversation, offering key takeaways on how DD can streamline operations and enhance loan repayment processes.

Driving the conversation

• ABC’s of DD
• Importance of DD to lenders
• How DD reduces the rate of loan default for lenders

Key takeaways

What is Direct Debit? [2:17]

Direct debit is a payment method where the customer’s account is directly debited for the amount they owe. Often referred to as account-to-account payment, the process involves setting a mandate and schedule for debiting the borrower’s account, ensuring timely repayments. Unyime Tommy explained this process, emphasizing its simplicity and efficiency.

Why lenders need Direct Debit: [3:19]

Direct debit offers a more reliable repayment method compared to cards, which can be blocked by users. It provides lenders with the authority to debit the borrower’s account as per the agreed schedule, reducing the risk of missed payments. Additionally, closing an account is a longer process compared to dealing with issues related to cards, such as loss or expiration.

Types of mandates: [5:19]

There are two types of mandates:

• Paper mandates: Involves sending a signed document to the bank, which then authorizes the lender to debit the account.
• Electronic mandates (e-Mandates): A faster, paperless process where the customer authorizes the transaction electronically, often within the same day.

“With e-mandates, authorization can more or less be gotten within the same day, even under an hour.” – Unyime Tommy

Why Direct Debit is worth it for loans: [12:41]

Direct debit removes the friction associated with card payments, such as card expiration or loss. It provides direct access to the borrower’s account, allowing for partial debits if the full amount is not available, and reduces the risk of late payments, as pointed out by Unyime Tommy.

Loan disbursement within mandate limits: [27:40]

If a loan amount is within the mandate limit (e.g., ₦200,000), the lender can disburse using the same mandate. For amounts exceeding the mandate, a new mandate must be set up.

“If you’re taking more than the mandate or the instruction that you’ve given, you won’t be able to use that particular mandate.” – Unyime Tommy

Common challenges in implementing Direct Debit: [48:43]

Lenders face regulatory challenges and must convince borrowers that direct debit is safe. Fraudulent activities, such as phishing for OTPs, make borrowers wary. Setting up DD can be complex, especially for smaller lenders. However, Lendsqr simplifies this with plug-and-play solutons for both NIBSS and Remita.