The future of energy payments is flexible

Recurring payments for the energy sector at a glance

• The payment challenge: UK energy suppliers need to cover their wholesale and operational costs whilst consumer debt reached £4.8 billion in Q1 2026

• Defying perceptions: Traditionally, the energy sector has been seen as inflexible. Innovation-minded firms are seeking to change that 

• Giving control to consumers: recurring Pay by Bank offers automated account-to-account (A2A) payments that can align with fluctuating customer incomes and reduce the ‘poverty premium’

• Lowering admin costs for energy suppliers: Modernised payment orchestration reduces the drag caused by failed transactions and bad debt.

• A win for the energy regulator: recurring Pay by Bank helps support Ofgem’s strategic objectives around reducing debt, financial inclusion and promoting innovation.

At the start of June, a new, open banking-powered account-to-account (A2A) scheme was launched. The scheme enables fintechs like GoCardless to offer flexible, automated, recurring Pay by Bank payments to a selection of highly regulated sectors, like the energy market. 

We played our part in shaping the policy environment and rulebook for the scheme, and are delighted it is now available for merchants in the utilities, financial services, charity and public sector to benefit from.

Payment challenges in the energy sector

Energy suppliers have to perform a delicate balancing act. They need the certainty of getting paid to manage wholesale and operational costs, which have skyrocketed in recent years. However, their customers need flexibility to align their income with their outgoings. As many as 25 million Brits live on unpredictable incomes, meaning their ability to pay their energy bills changes over time.

The result of these competing stresses is that energy debt in the UK has been growing steadily, with British customers owing energy firms £4.8 billion in Q1 2026. 

Source: Ofgem, data shows the total amount of debt and arrears owed by domestic customers for more than 91 days between Q1 2018 and Q1 2026.

Typically, Brits pay their energy bills by Direct Debit. This is a reliable workhorse, but for those with fluctuating incomes, a rigid monthly date can lead to failed payments, bank charges, and mounting debt. 

About 30% of British households pay by prepayment meter or standard credit. These households tend to be less financially secure but face higher energy bills. Suppliers reflect the cost of managing expensive hardware, greater bad debt risk and other administrative costs. In other words, these customers are paying a ‘poverty premium’.

The energy regulator, Ofgem, is keen to reduce consumer vulnerability, promote financial inclusion and ensure the sector has a sustainable approach to debt going forward. The introduction of recurring Pay by Bank presents an opportunity to help address these strategic objectives.

New opportunities

Energy companies are often seen as some of the slowest-moving giants of the corporate world. For too long, legacy systems have made simple tasks - like collecting a payment - feel unnecessarily difficult for both suppliers and customers. However, in the face of rising customer and regulatory expectations, some in the industry are exploring how smarter payments can smooth the experience on both sides of the equation.

With recurring Pay by Bank, customers can set a limit on what an energy supplier can take from their account and align billing dates to their actual income patterns. They get control and the convenience of an automated bank payment. It’s a ‘smart’ direct debit. 

For suppliers, recurring Pay by Bank can:

• Expand the choice of payment methods they offer and provide a better interaction with customers, improving retention.

• Lower back-end administrative costs with faster payment confirmations and reduced credit control issues

• Enhance fraud prevention with the built-in bank account verification step in the Recurring Pay by Bank flow

• Check customer balances first, meaning they can take a more considerate approach to payment collection and reduce the likelihood of bad debts

Over 80% of UK personal current accounts are already able to support recurring Pay by Bank, with that number set to rise in the near future as more banks join the scheme. However, it does mean that merchants need a fallback mechanism for the roughly one in five payments that will not work in these early days. For that reason, GoCardless believes the market will develop by partnering recurring Pay by Bank with the ultra-reliable Direct Debit, which can operate seamlessly as that fallback option.

The future of billing is flexible

Direct Debit has been the gold standard in recurring payments for nearly 60 years. Recurring Pay by Bank is unlikely to displace it any time soon, but we’re excited about its potential to complement and enhance energy supplier collections strategies with Direct Debit at their core. 

For example, recurring Pay by Bank could help energy customers to make ‘top-ups’ - flexible micro-payments above a fixed, monthly baseline amount paid by Direct Debit. This will help smooth energy bills for people who want to maintain granular control whilst benefiting from automated payments, like the c. four million households using prepayment meters in the UK. 

GoCardless is already working with energy suppliers keen to deploy this new technology and improve operational efficiency, financial inclusion and customer trust. Contact our utility payment specialists today if you are interested in exploring how recurring Pay by Bank can support your business.