What is Paperless Direct Debit?

M. McGee
M. McGee
Many banks offer a direct debit Bill Pay system with their online banking services.
Many banks offer a direct debit Bill Pay system with their online banking services.

Paperless direct debit is a method of sending payments directly from a bank account to an unrelated account without using written authorizations. This process is the opposite side of the more commonly known direct deposit. Using direct deposit, an unrelated account, often the account of an employer, sends money to a bank account. Since sending money from an account usually requires authorization from the holder of the account, the process for setting up this system is more complex than the common direct deposit process. In the United States, the most common forms of paperless direct debit are automatic bill payment systems and PayPal®.

Direct deposit and direct debit are two sides of the same coin. When a transaction happens, the payer will see it as a debit and the receiver will see it as a deposit. In the past, direct debit wasn’t as easy as it is today; often, standard paper checks were sent to authorized banks and deposited manually. As the banking system became more computerized, simply moving money from one account to another became much easier, and the modern debit/credit system came into being.

The main difference between direct deposit and direct debit is the need for authorization. No one needs to authorize a deposit made into a bank account. The banks assume that no one would turn down someone giving him money, so, therefore, they don’t ask. On the other hand, people track debits down to the penny and want to know exactly where their money goes and when it left.

One of the main ways to authorize these withdraws is through using a check-like system. The payer gives a direct debit notice to the payee who then takes it to the bank. This method is more secure than other forms of payment, but is not truly ‘direct’ and can be a hassle for everyone involved. The other way of initiating one of these payments is through a direct debit agreement, where the bank is simply told to honor any request from a certain firm.

Neither of these common authorization methods are paperless direct debit, as they both require a written and signed agreement note. Paperless direct debit is not available in all countries, and many banks in the United States prefer not to use it. In other parts of the world, particularly Europe, the process is much more common and highly regulated.

In most cases, a paperless direct debit authorization is performed through a secure computer account. The payee will request money and the payer will log into his or her account and authorize the transaction, or the payer will simply send out money without a request. In either case, the login is considered equivalent to an authorization and the payer is not required to sign anything.

Discussion Comments


I don't know if this is true for all online direct debit systems, but mine actually converts money to different currencies for me. So I can receive payment in one currency and make purchases in another currency.

I realized that it could do this because I was relocated to a different country where I worked for one year. I wanted to buy some things online from the same site I have been using for years. When I finished the order and it took me to the direct debit provider, I saw that it converted the amount to the currency that I was being paid in abroad.

I'm really impressed with this, although I am wondering if I lost any money from the conversion. I believe it is converted based on the currency rates of the day. So I might have paid a little less or a little more for my purchases.


I'm interning for a nonprofit organization and they are using an online direct debit system for charities and donations. My boss said that it cost them a lot to have it set up on their website, and they still pay a monthly fee for it, but it's a good investment.

The greatest benefit of paperless direct debit that I have seen for the nonprofit is the speed at which the money reaches the organization. We support disaster and civil war victims around the world and when a natural disaster hits, our goal is to provide aid to victims as soon as possible. So this whole debit system actually supports the objective of the organization.


I realize that paperless direct debit is not the safest way to send people money, but I have not experienced any problems with it.

I both send and receive money through PayPal. I sell jewelry online that I hand make myself. I have a policy to return any difference between actual cost of shipping and what I have listed on the product. Also, sometimes, customers want to return the items and ask for a refund. Since these are all online payments without any oversight or protection mechanisms, it relies on mutual trust between buyer and seller.

I know there might be people out there who take advantage of this, but I think they are the exception. Most of us are just trying to make some extra income and realize that honesty will win us more customers in the long run. So I'm happy with using paperless direct debit methods, my customers are happy with my dealings. The money reaches quickly and without any fees, I'm going to keep using this until something even better comes out.

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    • Many banks offer a direct debit Bill Pay system with their online banking services.
      By: Pefkos
      Many banks offer a direct debit Bill Pay system with their online banking services.