The first phase of the UAE’s move towards direct debit banking is set to begin on Saturday, October 5 after the Central Bank confirmed it had completed the registration process for banks and finance companies.
The system, which was first flagged in April, will also soon be mandated for all loans and finances and will be available for services such as electricity, water, telecom, credit card dues and insurance premiums, the UAE Central Bank said.
Direct debit banking allows customers set up regular, automatic payments from their bank accounts towards mortgage loans and personal loan installments.
At present, the absence of such a system means post-dated cheques are frequently used in the UAE as guarantees by businesses and individuals.
For foreign nationals, bouncing the cheques is a criminal offence rather than a merely civil one, causing some foreigners to be jailed.
The UAE's tough penalties for defaulting on cheques were relaxed for local citizens last October after a royal decree was issued.
In a statement issued on Tuesday, a senior official at the UAE Central Bank said the direct debit system would save time and effort for both clients and banks.
“Our current intention is to establish a more convenient retail banking system that will create more efficient and progressive economic development,” he said.
“The introduction of the direct debit system is a step in the right direction towards increasing the efficiency of our banking system, and elevating it in line with the global best practices, thus strengthening the country’s status as a global financial hub.”
The Central Bank said in the near future the direct debit system would be mandated for all loans and finances being advanced by banks and finance companies.
A gradual implementation approach was envisaged to achieve this, commencing with all post-dated, cheque-backed loans and finances to individuals moving to the direct debit system.
It said the next phase of the system would facilitate payments towards services such as electricity, water, telecom, credit card dues and insurance premiums.
“With the proper adoption of the direct debit system by service providers a substantial reduction can be achieved on the need for paper based payment instructions for recurring payments,” it said.