How Can Direct Debit be Improved?

Direct Debit remains one of the UK’s most popular payment methods, used by over 90% of personal current account holders, and by around 40,000 organisations. In the decades since it was first introduced, Direct Debit has proved to be a simple, transparent and straightforward payment method for businesses and customers alike. But in the face of constant innovations in the financial technology sector, and the payments field in particular, are there ways in which Direct Debit can be improved? Throughout 2016, Bacs – the organisation behind Direct Debit – carried out a series of research projects intended to identify ways in which the product could be enhanced. More specifically, its aim was to “understand how a wider range of organisations could access Direct Debit as a means of accepting payments and how the needs of consumers either unable or unwilling to use the product could be better met”. Last month, Bacs published the outcomes of the Direct Debit consultation.

So What Did We Learn About Direct Debit?

Overall, the public consultation – which involved individual consumers as well as user organisations, consumer bodies, SME groups and Payment Service Providers – identified six core opportunities to enhance the Direct Debit product:

  1. Payment Flexibility – Bacs intends to explore the benefits, to both consumers and collecting organisations, of providing more flexibility in terms of payment dates and frequency, aimed at “meeting the needs of those who want more control”.
  1. Pre-Authorised Direct Debit Collection – This would involve testing the concept of allowing consumers more control of individual Direct Debit collections, by adding an additional point of interaction between the collecting organisation and the payer, giving permission to collect the Direct Debit.
  1. Restricted Guarantee – A new, separate debit collection product that would operate a more restricted version of the Direct Debit Guarantee. The current Guarantee is arguably more weighted towards the rights of the consumer and can be subject to abuse; a Restricted Guarantee product would be “more attractive to SMEs and in the business-to-business payments market”.
  1. Facilities Management – Bacs aims to investigate ways to improve access to Direct Debit among SMEs by working with the facilities management community to help ensure the market is open and competitive.
  1. Account Verification – In terms of both day-to-day Direct Debit processing, and dealing with Direct Debit Guarantee claims, it is important that the two ends of any payment transaction are in fact who they claim to be. Bacs will look at how existing or new tools might be utilised for account verification.
  1. Consumer Notification of Lodgement of DDI – This would test the impact on Payment Service Providers of notifying payers any time a new Direct Debit Instruction is lodged on their bank account. This would ensure consumers “have the information they need when they want it”.

While it has to be acknowledged that Bacs has a difficult task in seeking to balance the sometimes contradictory preferences of businesses and consumers when it comes to matters of control, flexibility and the protections afforded by the Direct Debit scheme, there are certainly some interesting propositions here. Bacs intends to subject each of the six identified opportunities to a further series of tests and investigation over the remainder of the year. This is what London & Zurich’s Managing Director, Kevin Morgan, thinks about the Direct Debit consultation: “Over the past 50 or so years, Direct Debit has proved a massive hit with businesses and consumers alike. The transactional statistics speak for themselves and Bacs have done a tremendous job with the product. However, they are not standing still, and we at London & Zurich support the evolution of the product to ensure it continues to meet business and consumer demands for the next 50 years.” If you’d like to discuss the outcomes of the consultation and how the six opportunities might affect the evolution of secure Direct Debit solutions, please get in touch to speak to one of our expert business payments consultants.

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