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.

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0.5

1.0

1.5

2.0

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3.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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mes

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es £

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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

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25

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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umes

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ions

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ues

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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

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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?

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6

6

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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

bacsacademy@bacsservices.co.uk

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