Why direct debit is the silent hero of loan recovery in Nigeria

Chukwudi had always prided himself on being a dependable borrower. When he first took out a loan to expand his small kiosk in Lagos, he envisioned a smooth ride toward paying it off, fueled by the steady growth of his small business. But soon, he found himself wrestling with a problem he hadn’t anticipated: his payments kept failing.

It started innocently enough. Chukwudi’s debit card was close to expiring, and he had forgotten to update it with the bank. But then, a new card arrived, and a few weeks later, it was flagged for fraud and temporarily blocked. The delays began to pile up, and the stress was mounting. He was now too shy to keep explaining the reason for delays to his lender, as he felt they thought he was lying and trying to evade repayment. Every day that passed brought a wave of anxiety, not just for Chukwudi but also for the lender who was counting on those timely repayments.

Chukwudi’s struggle is all too common in Nigeria, where card-based transactions are often fraught with issues. Whether lost cards, failed transactions, or security freezes, these obstacles can make repaying a loan a nightmare. And in a country where over 85% of transactions are still cash-based, these challenges can be even more pronounced.

But a quieter, more reliable alternative has been steadily gaining ground: direct debit (DD). Unlike cards, direct debit cuts through the noise, offering a simpler and dependable way to ensure payments are made on time, every time.

Recent data backs this up. Lenders who have switched to direct debit report a 25% boost in successful loan recoveries, and according to the Nigerian Inter-Bank Settlement System (NIBSS), about N320.9 billion in direct debit transactions occurred in 2017. It’s becoming clear that direct debit is the future of loan repayment in Nigeria. As more lenders and borrowers like Chukwudi discover its benefits, its popularity will only grow.

Featured read: Handle payment collection like a pro with direct debit

3 reasons why direct debit is a winning loan recovery strategy in Nigeria

Direct debit is gaining traction as a top choice for loan recovery in Nigeria, and here’s why:

Reliability

Direct debit doesn’t suffer from the common issues that make cards unreliable, such as getting lost, expired, or blocked, which affect the steady flow of payments. Once set up, direct debit remains active for years, providing the lender consistency and peace of mind.

Security

Cards are a frequent target for fraud, which can lead to blocked accounts and missed payments. Direct debit offers a safer alternative, reducing the risks associated with unauthorized transactions and ensuring that payments go through as planned.

Simple transaction process

While card payments involve multiple intermediaries, direct debit is straightforward. The funds move directly from the borrower’s account to the lender, minimizing the chances of transaction failure and ensuring that payments are processed smoothly.

Instant payments

Direct debit processes payments almost immediately, unlike card payments, which might take up to 24 hours to complete. This immediacy ensures that lenders receive their money on time, every time.

Detailed payment narration

Direct debit transactions come with detailed narration, allowing lenders and borrowers to track payments clearly. This transparency helps avoid confusion and makes financial management easier for everyone involved.

Partial debit capability

With direct debit, lenders can process partial payments. A feature that Lendsqr supports through an interesting approach. This flexibility is often unavailable with card payments, making direct debit a more versatile payment option for loan recovery.

Featured read: Which is better for loan repayments: cards or direct debit?

The silent hero of loan recovery

It’s clear that direct debit is quietly but steadily gaining ground as the go-to method for loan recovery in Nigeria. It might not be the top choice just yet, but more and more lenders are catching on to its reliability and simplicity. Think of it like this: in countries like the UK, USA, and Canada, direct debit is the unsung hero behind everything from paying bills to managing subscriptions. 

We’re not quite there yet in Nigeria, but we’re on the way. It won’t be long before direct debit becomes the norm, making loan repayments as easy and dependable as a monthly subscription to your favourite service. The future of loan recovery is changing, and direct debit is leading the charge. If you are a Lendsqr lender seriously considering making the switch to direct debit, Learn how to activate direct debit as a repayment method on Lendsqr. You can also sign up on Lendsqr to become a digital lender.