Is there room to improve Direct Debit?

Direct Debit use in the UK grew by 4.9% in 2016 - but how can we make it even more popular?

Direct Debit has been growing fast over the last few years. Today in the UK, over 90% of personal current account holders and around 40,000 organisations use it - and it’s the most popular way for UK consumers to pay their bills. Recent figures show that 9 out of 10 adults have at least one active Direct Debit and pay around 73% of their household bills this way.

Bacs, (short for Bacs Payment Schemes Limited), the organisation behind Direct Debit, processed over 6 billion transactions in 2015 to a value of £4.6 trillion. This figure included an impressive 3.9 billion Direct Debit payments, an increase of 239 million on the previous year.

But despite the popularity of Direct Debit, there remain areas for improvement. Bacs has conducted research into the current state of Direct Debit, to ensure the product remained ‘relevant and fit for purpose’.

Here at GoCardless, part of our job is educate businesses about the benefits of Direct Debit, so we were keen to understand these insights from Bacs. In this post, we explore some of the issues unearthed in the research, and examine ways to address them.

The consumer view

For consumers, the Direct Debit Guarantee is a key feature giving them confidence and trust in the system. The Guarantee (also known as the ‘Direct Debit Indemnity’) is a method of customer protection built into the Direct Debit scheme. It protects customers against payments made in error or fraudulently, making Direct Debit the UK’s safest payment method.

According to the Bacs research, more than half of consumers surveyed (57%) said they were aware of the Guarantee. But younger and less financially secure individuals are less likely to be aware of it. Over a quarter of consumers said they didn’t know how long the Guarantee was valid for, with a third believing it to be valid for a year or less.

It’s important to convey that the Guarantee is unlimited, as this helps consumers feel more secure in using Direct Debit. Educating consumers about the Direct Debit Guarantee could be the key to building their confidence and encouraging them to pay by Direct Debit.

What’s more, users with less knowledge of Direct Debit are more likely to think money can be taken from their account at any time, without warning. This audience said they would like to be notified when Direct Debit payments are set to leave their account, but didn’t realise that Direct Debit providers are already obliged to inform them of this.

The business view

As far as SMEs are concerned, the research found that only 3% pay their bills by Direct Debit (compared to 73% of consumers). Possible reasons may include the traditional struggle for B2B suppliers to offer Direct Debit as a payment method (due to challenging access requirements from the banks), along with consumers’ tendency to be ahead of the curve in cloud adoption, plus the late payments culture in British business.

For SMEs, perceptions about the Direct Debit chargeback rate have been largely inaccurate, with figures showing consumers charging back less than one in every 4000 Direct Debit payments. What’s more, it’s fraudulent to falsely charge back payments. Awareness of this is important for setting small business owners’ minds at ease and making them more likely to use Direct Debit to take payments from their customers.

Improving Direct Debit for all

For many people, Direct Debit is a trusted payment method due to the Guarantee.

But this research has uncovered opportunities to improve understanding: both among consumers so they’re more willing to pay by Direct Debit, and among businesses so they are more comfortable in offering it. In turn, this points to an opportunity for Direct Debit growth in both B2C and B2B, leading to improved cash flow for everyone.

Having brought Direct Debit into the digital age, GoCardless is well-placed to deliver further improvements, as well as helping to educate consumers about the many benefits of taking payments by Direct Debit.

Learn more about how GoCardless is helping companies improve Direct Debit.