What is the name of a service where a bank makes regular payment on behalf of its customers?

A. Direct debit
B. Credit transfer
C. Standing order
D. Bank draft

Correct Answer: Option A

A. Direct debit

Explanation

A direct debit or direct withdrawal is a financial transaction in which one person withdraws funds from another person’s bank account.

Formally, the person who directly draws the funds (“the payee”) instructs his or her bank to collect (i.e., debit) an amount directly from another’s (“the payer’s”) bank account designated by the payer and pay those funds into a bank account designated by the payee. Before the payer’s banker will allow the transaction to take place, the payer must have advised the bank that he or she has authorized the payee to directly draw the funds.

It is also called pre-authorized debit (PAD) or pre-authorized payment (PAP).

A direct debit instruction differs from a direct deposit and standing order instruction, which are initiated by the payer. A standing order involves fixed payment amounts paid periodically, while a direct debit can be of any amount and can be casual or periodic.