How do customers want to pay for their household energy bills?
Last editedMay 20213 min read
The payment method consumers choose to use - we call this payment preference - can have a huge impact on both customer acquisition and retention for an energy business. Therefore, the payment method(s) your business offers is an important consideration for any payments function.
In this article we’ll help to answer:
How do your customers want to pay for their household energy bills?
What is consumer payment preference and why is it so important?
Do customer preferences meet your business objectives?
Does being more customer-centric in your payments strategy pay off?
So, how do your customers want to pay for their household energy bills?
A 2021 YouGov survey of over 15,000 consumers, commissioned by GoCardless, identified Direct Debit as by far the most popular way to pay household bills in the UK. Over three times as many people choose to pay with Direct Debit than the second most popular choice, debit cards.
As 65% of UK consumers choose to pay their household bills with Direct Debit, there is a clear consumer demand for Direct Debit as a recurring payment method.
A similar picture can be seen across the globe. For instance, the local equivalents of Direct Debit were the most popular payment methods for household bills in Australia, Germany and France. Meanwhile in the US, Canada and New Zealand, the local equivalents of Direct Debit were the second most popular payment methods. This shows global demand for these bank-to-bank payment methods, an important fact to consider when thinking about international expansion.
Businesses that do not offer consumers the option to pay with Direct Debit reduce their chances of winning new customers. As Direct Debit is so popular in the UK, businesses should also be focussing on creating a smooth and frictionless payment experience when new customers are registering, in order to maximise customer acquisition.
In fact, Direct Debit was one of the most popular choices for consumers to pay for household bills across all the countries examined. In a study commissioned by GoCardless in July 2020, we asked over 8,100 consumers across the UK, France, Germany, Denmark, Sweden, USA, Canada, Australia, New Zealand, why they chose to pay for a recurring invoice by Direct Debit. These were the top three reasons given:
“This was the default option”
“Paying this way gives me peace of mind”
“I had these details to hand”
Because Direct Debit is a ‘pull-based’ payment method, it’s not surprising it is one of the most convenient ways to pay for recurring payments for consumers. Direct Debit offers safety, flexibility and automation.
We wanted to give our members whatever payment options they most trusted and were the most convenient. GoCardless was the most simple, reliable and advanced Direct Debit system we found.” - Bulb
What is consumer payment preference and why is it important?
When we discuss consumer payment preference we mean the number of customers who choose a payment method. Customers like to pay in different ways, so there is not a single payment method that will please every customer. However, customers often opt for methods that are trusted, convenient or easy to use.
Why should energy suppliers cater to preferred payment methods?
Introducing new payment methods, as well as managing and maintaining these options can be a complex, costly and time-consuming process, especially for a large or scaling business. However, by offering payment methods that suit a wider range of existing or potential customers your business will be able to retain and win more customers.
By offering preferred payment methods to your customers you will reduce friction in the payment process, making their buying experience smoother. Nonetheless, if you don’t offer a preferred payment method, you run the risk of payers dropping out of the payment process and going to a competitor that does offer their preferred payment.
Does consumer preference for Direct Debit meet your business objectives?
Although Direct Debit is preferred by most consumers, it’s important to consider the benefits Direct Debit could have for your business as a payment method. Direct Debit is a pull-based method, meaning you have control of when you collect payments from your customers and can easily be automated.
As a bank-to-bank payment method, Direct Debit avoids the costly transaction fees associated with credit cards and Direct Debit typically has a lower payment failure rate - which often becomes involuntary churn - than many of the other payment options.
As an energy business, it’s likely that you will need to collect one-off payments for account top-ups or chasing failed payments. Although you can collect one-off payments with Direct Debit, it can be a painful experience for both the consumer and the merchant.
That’s why we developed Instant Bank Pay. You can now collect one-off payments with an instant bank-to-bank payment powered by open banking. Instant Bank Pay empowers recurring revenue businesses to collect one-off payments in conjunction with Direct Debit. Providing a seamless experience for customers with all the benefits of a bank-to-bank payment.
Instant Bank Pay
Complement your recurring payments with a simple, convenient way to collect one-off payments powered by open banking.
Does being more customer-centric in your payments strategy pay off?
By being customer-centric and catering to consumer preference to pay by Direct Debit, your business could reap many benefits including; improved customer acquisition, retention and efficiencies in your payment operations, giving your business a competitive advantage.
“We’re adding an average of 1,500 customers every month, with 100% of them using GoCardless. We’re confident that GoCardless can continue to comfortably handle all of our payment needs no matter how much we continue to grow.” Yorkshire Energy
For a deeper dive into which method(s) consumers choose to pay for their household bills across the globe, read our report: Consumer Payment Preferences in 2021.
