5 min read
Question: Why are card payments like the horse and cart?
If you are waiting for a punchline, I must tell you that it is no laughing matter for many businesses!
The horse and cart's popularity as a method of personal transport has declined alarmingly in the last 100 years. Advancements in bank payment technology are likely to send card payments the same way that motorised vehicle development sent the horse and cart!
Card payment problems
For many SMEs, accepting card payments is still a given despite their disadvantages compared to bank payment methods.
The disadvantages of card payments are:
high transaction fees
high payment failure rates
high burden of manual admin
increased susceptibility to fraud
By contrast, bank payment methods offer businesses:
more affordable transactions
higher payment success rates
higher levels of security
inbuilt customer protections
More and more SMEs are moving away from card payments and adopting bank payment methods - a move they find their customers are more than happy with.
Bank payment use-cases
Cards will continue to be a vital part of the payment mix for e-commerce and brick-and-mortar retail stores for some time due to their familiarity with consumers and their convenience.
However, businesses collecting regular or irregular recurring payments would benefit from accepting bank payments over card payments. These include subscription and SaaS businesses and any service business that accepts card payments on their invoices.
Bank payment methods
There are two bank payment methods that help optimise the payment collection process for businesses:
Instant Bank Pay
Direct Debit is a 'pull' payment that puts your business in charge of the payment collection process by enabling you to choose the amounts, frequency and due dates of these payments.
Your customer authorises an online mandate allowing you to set up payments that automatically collect on the due dates without further action from yourself or the customer. These payments can be for regular amounts on a regular schedule or varying amounts on differing dates.
Direct Debit is also very flexible. Changes can be made to the amount, frequency and date without seeking further authorisation from your customer. The scheme has strict rules, and strong consumer protections, meaning any unauthorised payments are refunded.
Direct Debit significantly reduces late payments as payments are automatically "pulled" from your customer's account on the date set by you (especially great for invoicing businesses).
Direct Debit also offers much more affordable transaction fees than cards as they are direct account-to-account payments with no intermediaries involved in the process (especially great for subscription businesses).
Additionally, Direct Debit offers high levels of automation through the GoCardless merchant dashboard, saving your finance team many hours of financial admin (great for all businesses).
Instant Bank Pay
IBP complements Direct Debit by offering businesses a seamless way to take an initial amount instantly whilst the recurring payment is set up. IBP links can also be attached to invoices for payer convenience and to encourage prompt payment.
IBP is a seamless process that makes it easy for customers to settle invoices and make one-off and initial payments before the start of a subscription.
Switching payment methods
Switching payment methods doesn't have to be an extended ordeal that alienates your customers. Indeed your customers will benefit from a move away from card payments. Bank payment is easier and more convenient for customers to manage, with strong consumer protections built into the scheme.
Furthermore, it is not a case of choosing one or another - you can add a new method to your payment mix as an additional option rather than a replacement.
Case study - card payment issues & payer preference
Citrus HR Service, an HR software and consultancy with 20 in-house employees and 15 consultants, accepted credit card payments for their variable monthly subscription fees.
The company had serious issues with credit cards, calling them "not fit for purpose" due to:
high transaction costs - 2.5% per transaction, + £100 a month
regular failed payments - 10% to 15% failure rate
lack of credit card company support - very challenging to get help
Once founder & managing director, David Lester, discovered GoCardless, the company added bank payment collection by Direct Debit as an option for customers.
Easy to set-up
GoCardless is designed to have you set up and able to collect payments in just a few hours. In the case of Citrus HR, David notes,
There's no requirement to use the GoCardless API as Citrus did. You can get set up just as fast through the merchant dashboard, which enables you to quickly set up payments in just a few clicks.
Customers have shown a preference for Direct Debit that David wasn't expecting:
Concern about customer preference for payment by card is typically unfounded. Bank payment methods, such as Direct Debit, take less maintenance and offer better security and customer protection than card payments meaning customers are generally happy to switch.
Two years into working with GoCardless, David has been overwhelmed by the benefits of moving away from cards to bank payments:
set-up cost was almost zero
it took just an afternoon to get set up
automation of admin process saves 2 days a month
reduced late payments
automated reconciliation process saving even more time
improved visibility, tracking & reporting on payments
saving £1000 a month on transaction fees
Case study - cross-border subscriptions
DocuSign is a global SaaS company helping companies manage online contracts that switched from collecting via cards to bank payment via GoCardless.
As a global subscription business, Docusign needed a seamless payment provider that could handle both cross-border and recurring payments - GoCardless, built on bank payment, has expertise in both!
Beverly Tu, DocuSign's Director of eCommerce Growth, noted:
Improved retention and conversion
Adding Direct Debit to the payment mix increased customer retention compared to credit cards and PayPal. DocuSign also experienced 10% higher conversion rates across all payment methods wherever GoCardless is available.
Retention rates increased because of less involuntary churn caused by payment failure (as cards are lost, expired and cancelled). All businesses collecting subscriptions by card will suffer unnecessary customer loss as payments fail due to lost or expired cards.
The 10% increase in conversion rate across all payments suggests new customers choose DocuSign because their favourite payment method - bank payment - is on offer. Indeed research has shown that offering payment collection in local currencies, and local payment methods increases sales locally.
Case study - secure and reliable automated payments
Loopit is a car subscription software business. One of its most significant issues was collecting subscription payments reliably with a minimum of friction for the customer and a minimum of admin for their accounts department.
Higher payment success, more secure
While Loopit does accept card payments, they encourage customers to take advantage of the bank payment options available through GoCardless, due to the higher level of security and the higher payment success rate.
Jeremy Gupta, Chief Operating Officer, points out that:
Automate financial admin
He also highlights that GoCardless software integrations allow a level of automation in payments admin that saves significant amounts of time:
All GoCardless merchants find that they spend significantly less time on financial admin after moving to bank payment collection.
The lower burden of financial admin is because GoCardless offers integration with over 200 accounting software packages, including Xero, Quickbooks and Kashflow, that allow previously manual accounting tasks to be automated.
Secondly, due to the 'pull' nature of bank payments, Direct Debit payment dates are controlled by the business collecting the funds, eliminating late payments almost entirely. With late payments reduced to practically zero, there is less stress on cash flow and less time chasing late payments and associated admin.
Summary: bank payments vs. card payments
Card payments have been more popular than bank payments simply because, historically, it has been much more difficult for SMEs to access bank payment methods.
Now that bank payments are much more widely available and easier to access, it's clear that in many cases, bank payment is a superior choice for both business and customer.
Bank payment via GoCardless delivers the following benefits to SMEs:
zero, or minimal, set-up costs
significant savings on transaction fees
a significantly higher payment success rate
95%+ payments collected first try with GoCardless
quick and easy to get started
set up payments in just a few clicks
controlled by you so reduces late payments to almost zero
automation of payment admin process saves lots of time
automated reconciliation process saves even more time
improved visibility, tracking & reporting on payments
amount and date of payment can be varied as required
done-for-you service with award-winning customer support