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Direct Debit – attitudes, usage, support and opportunities
optional client logo 11 September 2008
Direct Debit – attitudes, usage, support and opportunitiesSandy Gow – Royal Bank of Scotland
Mike Hutchinson - Bacs
What we’d like to cover
01 The electronic payments market – an overview
02 What can be achieved?
03 What Direct Debit payers look like
04 Gift Aid and Direct Debit
05 Keeping Direct Debit customers once you’ve got them
Electronic payments
In 2007, just over 5.5 billion transactions were processed
3 billion Direct Debits
2.2 billion Bacs Direct Credits
300 million standing orders
It is forecast that Direct Debit payment volumes will grow from 3.0 billion in 2007 to 3.9 billion in 2017. In that year, Direct Debits will be used for 66% of all personal regular commitments.
0
1
2
3
4
5
6
7
8
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Volu
mes
Bill
ions
Direct Debits Automated credits Standing orders
Credit Card payments
The annual spend by consumers on credit cards has seen no growth since 2003, amounts outstanding have been stable for the last three years and the number of credit cardholders in 2007 was nearly one million below its peak of 31.8 million in 2005.
It is expected that the market will remain subdued before picking up in tune with the economic cycle.
A boost may also come from the use of contactless cards.
Personal credit card payment volumes are forecast to grow to 2.6 billion in 2017, from 1.8 billion last year.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Volu
mes
Bill
ions
0
30
60
90
120
150
180
Valu
es £
Bill
ions
Volumes Values
Cheques are in decline
The rate of decline in cheque use has picked up in recent years, and transaction volumes fell at their fastest-ever rate of 10% in 2007 to 1.6 billion.
Less than 10% of personal regular bills are paid by cheque
Cheques are expected to account for only 2% of personal non-cash payments in 2017
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Volu
mes
Bill
ions
Personal payments Business payments Cash acquisition
Cash is still King?
Cash is the dominant payment method in the UK in terms of the number of transactions made, with 22.4 billion cash payments in 2007
Migration to automated methods will continue to cut the use of cash for paying regular bills.
Much of the expected decline in cash use will come for lower value payments
0
5
10
15
20
25
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Vol
umes
Bill
ions
0
60
120
180
240
300
Val
ues
£ B
illio
ns
Volumes Values
Personal regular payments
Defined as ‘all payments that arise from pre-existing household and individual commitments such as utility bills, mortgages, mobile phone subscriptions, insurance’ and regular lottery purchases
Direct Debit penetration of the regular payments market has been growing steadily. This trend has been driven by biller incentivisation and promotion, and by consumer preference for the convenience and the ability to spread payment that comes with Direct Debits.
The flip side of the growth in electronic payments is that cash and cheque volumes have been falling. In 1997 these methods accounted for 47% of regular payments; by last year this proportion had dropped to 20%.
0
1
2
3
4
5
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Vol
umes
Bill
ions
Direct Debit Cash ChequeStanding order Debit/credit card Remote banking
Benefits of Direct Debit
To corporates
It's cheaper than cheque and safer than cash
You control the date of receipt into your account
You get cleared funds in your account on a known date
You can collect variable amounts on regular or irregular dates
It can eliminate time consuming reconciliation. Only errors and non-payments will be notified to you, so you can carry out reconciliation by exception
To consumers
Spreads the cost of bills into manageable instalments
Peace of mind – payments are made automatically
Convenience – no need to write cheques or queue at the bank or post office
Guaranteed – money back guarantee in the event of an error
Can save you money – many organisations offer discounts
Direct Debit - attitudes, usage, support and opportunities
Mike Hutchinson - Bacs
Bacs?
• A not-for-profit, membership-based industry body owned by 15 of the leading banks and building societies in the UK and Europe
• Responsible for the schemes behind the clearing and settlement of automated payments in the UK including Direct Debit and Bacs Direct Credit, Bacs has been maintaining the integrity of payment related services for four decades.
• Since its inception,
– 68 billion transactions have been debited or credited to British bank accounts via Bacs.
– In 2007 over 5.5 billion payments were made this way
– 90.3 million items were processed in one day in Nov 2007
• Almost three billion Direct Debit payments are processed by Bacs a year and 75 per cent of adults now have at least one Direct Debit commitment.
• Central marketing team – free advice and support
So, what can be achieved with Direct Debit take-up?
46% actively prefer to pay by
Direct Debit
24% are selective but
positive about paying by Direct
Debit
12% will not and 6% cannot pay by Direct Debit
PREFERRERS CANNOT / WILL NOTSELECTIVES
70% of the UK adult population have a positive attitude to Direct Debit
Payment of selected individual commitments by method 2007
0%
20%
40%
60%
80%
100%C
harit
ydo
natio
ns
Car
insu
ranc
e
Reg
ular
savi
ngs
Hea
lth c
lub
Car
tax
Remote banking
Plastic card
Standing order
Direct debit
Cheque
Cash
So, how do we seek out likely Direct Debit payers?
What type of people?
How old?
What messages will persuade them?
Profile of regular charity givers by DD / SO
7
5
30
37
32
36
13
10
14
6
5
6
0% 20% 40% 60% 80% 100%
DD
SO
A B C1 C2 D E
Base: all GB adults who regularly donate to charity 2007
Profile of those donating on a regular basis by DD or SO is dominated by BC1. Slightly higher proportion of D’s donate by DD than SO
Profile of regular charity givers by DD / SO
2
1
13
11
20
20
18
14
17
22
29
32
0% 20% 40% 60% 80% 100%
DD
SO
16-24 25-34 35-44 45-54 55-64 65+
Base: all GB adults who regularly donate to charity 2007
Regular charity donor profile - 65yrs plus greatest influence. Very low 16-24 yr old profile
What to say to them?
98%
99%
98%
95%
81%
98%
98%
88%
97%
84%
87%
69%
61%
72%
86%
83%
65%
69%
57%
44%
28%
29%
50%
40%
30%
58%
66%
0% 20% 40% 60% 80% 100%
DD are a safe & reliable way for me to makepayments
DD are a convenient way to make payments
DD are a better way of making payments
DD helps me organise finances
DD save me £
With DD I have no worries about forgetting topay bills
DD save me time
DD help me spread payments
DD makes my life easier
Preferer
Selective
Reluctant
%ge agree
Source: Bacs CPS 2007
What to say to them?
47%
82%
97%
95%
96%
99%
49%
66%
76%
70%
72%
93%
35%
49%
49%
35%
43%
76%
0% 20% 40% 60% 80% 100%
Less likely to switchprovider w ith DD
DD protects yourrights through
guarantee
DD is a paymentmethod I can trust
DD gives peace ofmind
paying by DD ishassles-free
DD is simple way ofpaying
Preferer
Selective
Reluctant
%ge agree
Source: Bacs CPS 2007
Why some people don’t use Direct Debit?
38%
26%
6%
4%
4%
25%
35%
13%
8%
10%
12%
36%
16%
11%
14%
0% 20% 40% 60% 80% 100%
I am aware of the DD guarantee
I prefer to pay bills in full whenever Ican
It's a hassle getting £ back ifmistakes or overpayments made
Some companies charge extra if youpay by DD
My bank balance tends to bevariable & I can't be sure to coverbills which are being paid by DD
Preferer (b: 907)
Selective (b: 475)
Reluctant (b: 192)
Selectives and Reluctants are significantly different at the 95% confidence level in agreement to preferers on all the statements
%ge agree
Why some people don’t use Direct Debit?
3%
3%
3%
3%
3%
2%
2%
9%
14%
17%
13%
15%
14%
10%
10%
27%
16%
23%
16%
18%
17%
0% 20% 40% 60% 80% 100%
Some bills not large enough to pay by DD
Prefer paying bills by cash or cheque overthe counter at bank
Don't trust some companies to administerDD correctly
Prefer to pay bills by cheque whenever Ican
I would lose control of finances if I paidtoo many bills by DD
Don't use DD for bills where amountvaries
Paying by cheque is less hassle than DD
Preferer (b: 907)
Selective (b: 475)
Reluctant (b: 192)
%ge agree
Direct Debit is the payment method with greatest penetration of Gift Aid
5
2
3
8
8
19
55
0 10 20 30 40 50 60 70 80 90 100
Other
D/K/C/R
GAYE
Cash
Cheque
SO
DD
%Base: all GB adults who regularly donate to charity 2007
Ever heard of Gift Aid?
8379
87
59
8689 88
8588
0
10
20
30
40
50
60
70
80
90
100
total male female 16-24 25-34 35-44 45-54 55-64 65+
yes
Base: all adults interviewed CPS 2007
Just over 8 out of 10 (83%) British adults claimed to be aware of Gift Aid. Lower proportion of 16-24 yr olds aware of Gift Aid
%
Ever heard of Gift Aid?
83
8986
77 7976
0
10
20
30
40
50
60
70
80
90
100
total AB C1 C2 D E
yes
Base: all adults interviewed CPS 2007
Higher socio-economic groupings are more likely to have heard of Gift Aid
%
Sign up via paperless Direct Debit (PDD)
• PDD enables organisations to sign up customers for Direct Debit collections over the telephone, Internet, telephone keypad, face to face or interactive TV.
• It speeds up and simplifies the sign up process, whilst at the same time further increasing an organisation's administrative cost savings (no paperwork, delays or postage)
• It is more convenient for customers too, with no forms to complete or the possibility of delays
• One on one marketing allows you to educate and inform
• You can begin the collections process earlier, as you don’t need to wait for the customer to complete and return the DDI
• Most large organisations already offer this service.
• Additional scheme rules and mandatory training
Keeping Direct Debit customers once you’ve got them
“Your most unhappy customers
are your greatest source of learning”
Bill Gates
Chairman, Microsoft
“Customers don’t expect you to be perfect.
They do expect you to fix things when they go wrong”
Donald Porter
VP, British Airways
Do problems happen?
% Direct Debit users with problems in last 12 months
12
10
87
8
10
7.9
6.65.9
4.1
6.9
0
2
4
6
8
10
12
14
1995 1996 1997 1998 1999 2000 2001 2002 2005 2006 2007
Base: 2007: Omnibus: Representative Sample Direct Debit users: 771
Direct Debit Problem Research| December 2007 | page 27
Where Do Problems Occur?
2
6
6
8
10
18
59
Base: All who have had a problem with Direct Debit (200)
• Gas 15%• HH Telephone 12%• Electricity 12%
• Other Bills 4%• Mail Order 2% • Purchases 1%
• Internet 7%• Gym 1%•Magazine 1%
• Pension 1%• ISA 1%
• CC Payments 4%• Other HP Loan 3%• Store Card 2%
• Mobile Phones 6%
• Motor 10%• Life 5%• Health 2%
Core HH Bills
Mobile Phone
Debt Repayment
Savings
Subscriptions
Other Bills
Insurance
% vs 06
-4
+2
-4
-5
-1
+4
+1
How do customers feel about Direct Debit as a result?
29
31
25
65
59
67
5
11
8
2005 (284)
2006 (200)
2007 (200)
%
No ChangeLess Happy
Two-thirds say their view of Direct Debits is unaffected - a similar proportion to before. A quarter though say they are now less happy compared with only 8% who say they are happier.
Happier
Base: All Direct Debit problem (200)
Impact of experience on future Direct Debit usage
6
3
4
14
10
13
65
69
66
9
10
10
7
9
8
2005
2006
2007
Base: 2007: Sample Direct Debit Problem Users (200)
Base: 2006: Sample Direct Debit Problem Users (200)
Base: 2005: All who have had a problem with Direct Debit <12 months (400)
%
Definitely More
Probably Same
Probably More
Probably Less
Stop
Two-thirds say their future usage of Direct Debits is unaffected by their experience. 18% say they plan to use Direct Debits more BUT a similar proportion say they plan to use them less.
Keeping Direct Debit customers once you’ve got them
• Review DD processes
• Undertake a Training Needs Analysis • do you know what your customer facing staff knowledge levels are?
• do you account for staff turnover?
• www.bacslearning.com
• Introduction, Working With and Managing Direct Debit e-learning courses
• The Great Balloon Race – a free diagnostic tool to help you identify any knowledge gaps
• Accredited face to face training
• Direct Debit for Dummies
• DD Guarantee ‘reminder’ cards
Help is at hand – www.bacs.co.uk and www.directdebit.co.uk/helpcentre
• Bacs Academy – knowledge centre
• Direct Debit HelpCentre
Thank you
Any questions?
“Set your target and keep trying until you reach it”
Napoleon HillAuthor