I thought it was some sort of new 'micropayment' service aswell from the HN title of "Direct Debit API for 1% max £2". Twas only after reading the website that I realised the max £2 is for their fee.

The £2 limit is on the transaction fee, not the maximum payment. From the FAQs:

    ... you will never pay more than £2.00 for a transaction.

That's the cost to the seller:

No set up fees, no monthly minimums, and no hidden charges.

Simple, transparent pricing - we charge just 1% per transaction up to a maximum of £2.00.

£2 is the most you'll pay as a fee. 1% or £2, whichever is lower.

The limit is how much they charge you...