Paperless money transfers have become more and more prevalent over the past couple of decades. Replacing cash and cheque payments, cashless money transfers offer increased convenience and further ease for many employers and service providers. However, are paperless options always best for consumers? In each relevant case, it is worth considering which is the best option for money transfers and payments. The most common options include:

  1. Standing Orders
  2. Direct Debits
  3. Continuous Payment Authority (CPAs)

Different financial and everyday products, including personal loans, utility payments, credit cards and others, may accept or even require particular methods of payment. For example, your gas and electricity provider may require you to set up a direct debit to satisfy payments thereafter. In cases of loans from direct lenders as well as via brokers or comparison sites, a CPA is very often required to be set up to ensure that borrowers are less likely to miss repayments.

It is important to discern between the different types of automated payments so you can budget and predict your future finances. Many people in the UK think for example, that they have standing orders, when in fact they have direct debits or even continuous payment authorities.

What Are Standing Order Payments?

A standing order is an instruction from the payer, service or product recipient for their nominated bank to pay a third party at set intervals. Standing orders are often used to pay rent, phone contracts as well as utilities. Standing orders can be arranged to be recurring or set up to occur repeatedly over several payment periods. The UK has also, in the last decade used a new system which allows these transfers to arrive the same day instead of within the previously accepted 3-day standard practice. In some countries including South Korea, each transfer incurs a fee. However, in the UK, this is rarely if ever the case.

What is a Direct Debit?

As opposed to an instruction to the bank in cases of standing orders, a direct debit requests a money transfer from the service provider. This includes debit or sometimes even credit card providers such as Visa, MasterCard, American Express and others. This has been a very popular payment method over the past 50 years, perhaps the most popular option. Direct debit payments account for over £4 billion each year, with nine out of ten people living in the UK using direct debits for various services and subscriptions.

As opposed to standing order payments, the company taking the payments determines the value and frequency of each transaction. This is common in areas such as utilities, where the consumption of the product or service can vary from month to month.

It is important to remain diligent, keeping on top of your monthly expenses and direct debit payments as well as other expenses, to ensure you have the money to pay out. Forgetting how much you are spending on payments can cause you to overlook direct debits in your budget, which can cause you to overdraft your account, which could harm your credit rating in the longer term.

Using a Continuous Payment Authority (CPA)

A CPA, or Continuous Payment Authority, goes a step further than a direct debit. Whereas a direct debit gives a company authorisation to take payments at regular intervals, (albeit determined by the payee), a CPA gives further reaching permissions to the payee. These permissions include being able to take payments once they are owed without necessarily being taken on a specific ‘set’ date.

CPAs have somewhat fallen out of favour over recent years, often due to consumers falling into potential traps, such as when a free trial of a product or service turns automatically into a full-blown subscription automatically.

Little can be done in these cases and another difficulty is the fact that cancelling these payments are at the discretion of the payee. Should the company not wish to cancel the CPA in question, this can always be done at the bank or card issuer directly.

The Financial Conduct Authority (FCA) has noted in recent years, that financial institutions may not have been behaving appropriately in such cases by not always cancelling CPAs when requested by the payer. It is fully within the rights of the bank account holder to cancel CPAs through their bank without the consent of the payee. This form of transfer is often associated with online payday loan companies.

It is also very important to regularly check bank statements to make sure that everything that you pay for on a regular basis is still uses and the account holder is aware of. Too often do people forget to cancel a spending commitment or CPA, or they may be on the wrong tariff without knowing. What is key to bear in mind, is that you can always cancel these by contact our bank or credit card provider.