Is online Direct Debit a “Win-Win” for Everyone?

 

Direct Debit or Direct deposit as it is called in some countries has been around for decades now and making steady inroads as a payment method offered these days by many large merchants, often with incentives (such as vouchers or money off a bill) to customers to sign a direct debit mandate. Merchants who are part of the Direct Debit scheme (called Originators) claim that the service not only saves time and hassle for customers in general, but also that it facilitates easier scheduling, easier storage, is more secure, involves less cheques and reduces errors. Of course, both the merchants and the banks also gain these same benefits, not to mention the capacity to reach into a customer’s bank account directly to collect payment for a bill (something that a customer is not always completely happy about).

  

Despite its steady progress, Direct Debit’s growth has slowed until very recently, when on-line billing and/or payment portals have come into being and offered to speed up quite an old-fashioned process, in which a paper-based form still had to be sent in and signed before service could commence (and the whole process repeated when a direct debit amount changed). These new portals (such as the one at www.Payswyft.com as an example) not only offer traditional benefits to consumers (shown in the table below to the right-the top 4) but adds new customer benefits that are only possible online (shown in the 5 blue italics items in the right column below). The online portal therefore gives consumers even more reason to either use direct debit some of the time or use it as their primary payment channel.

  

Banks

• Saves data entry staff time
• Opens up new markets
• Reduces float costs/ Accelerates cash-flow
• Faster settlement
• Better merchant and customer retention
• Low per transaction costs

Originators

• Retains customers for longer
• Reduces float costs/ Accelerates cash-flow
• More payments on time
• Interchange fee savings
• Adds payment type flexibility
• Can tie to credit card

 

Consumers

• Lower chequing account fees
• Less hassle in writing cheques, stuffing envelopes and mailing
• Builds better credit history
• Helps avoid bill late fees
• Simple to use Alerts
• Less paper
• Easy cancellation
• Easy registration/set-up
• Can tie to credit card

Banks and Originators win too

It’s always critical for a customer to gain substantive advantage with a payment service of any kind but it is even better if the service provider can win at the same time. In the two columns to the left above are therefore the advantages gained by both the banks and the originators/merchants by pushing direct debit as a payment option. For the banks the primary advantage is that online direct debit payments reduce data entry time and staff, but not far behind is the new revenue possibility of opening up new markets (e.g. smaller merchants being introduced to the scheme). For the originators the primary advantage is that it helps to retain customers, who typically like all their payment history to be available at the portal. Just as important though is the cash-flow benefit. Direct debit payers almost always pay on time (and many pay early). No more cheques in the mail on the last possible day.

  

Summary

Direct debit is not a new service but online billing and/or payment portals such as PaySwyft offer even more reasons for everyone to gain the benefit of using this payment channel.

 

 

 

 

 

 

Is it "Safe" to View and Pay Bills online?

As Internet technology now allows bills or invoices to be presented electronically and then paid at the presenting web site (whether this is a bank’s site, merchant site or third-party site) in this brief article we investigate whether this carries any significant risk from a payee/consumer or merchant perspective.

 

Perhaps the very first test of  potential “riskiness” when using any electronic presentment and payment (or EBPP for short) web site is whether it is secure. The vast majority of web page addresses, also known as URLs, typically begin with "http." However, to pay bills online, the web page should always start with "https," which signifies a secure socket layer or SSL connection (or one in which data is fully encrypted).  This typically means that you can see a padlock icon, usually in the top or bottom corner of the browser window (or in some cases it may even turn the URL address background green or light blue). Clicking the padlock icon will often reveal the site's security certificate (and allow you to read about the particular protection that this affords).

 

Now that a consumer knows that he or she is on a secure site, the next step is to ensure that the login process is secure. A good site will usually give a consumer two options-to pay instantly or as a guest, and to register on the site to use it again and save time on the next occasion the consumer uses it. As a guest, a web site will typically only ask for an email address and then ask a consumer how he or she would like to pay from the options they make available. This may mean entering debit or credit card details for example, which should then give a consumer the option to confirm the transaction (and then as a further security step run the transaction through 3D secure-a process used by major credit card companies as an added XML layer for online credit and debit card transactions. Visa call this process “Verified by Visa”, MasterCard call it “MasterCard SecureCode”, JCB International call it “J/Secure” and American Express call this “SafeKey”. Overall then, a well-constructed site will offer a safe payment system for consumers (and there are card and bank protections on fraud and low limitations on consumer liability in any case). Even so, consumers should also look for extra safety in specific statements on any given EBPP site about PCI compliance (or payment card industry standard adherence) and/or that credit/debit card data or numbers will not be stored or saved in any way (and if they are, that they will be fully encrypted and tokenised as a further protection against theft or fraud).

 

When registering (either before or after a bill had been viewed and paid) a well-designed and safe web sites will ask a consumer to set up a user name and password that he or she can remember and that identifies the consumer every time he or she uses the site in the future. The site may also ask for additional data such as email address, physical address, date of birth, driving license number or even passport number. In some cases, they may go yet further and ask security questions to help validate a consumer’s identity in the case of a future forgotten login ID or password. Although these may seem personal and even intrusive, these steps are all designed to protect consumer security and ensure that only one person is able to see the bills posted and to effect payment of any kind. In other words, this process allows the web site operator (financial institution or merchant) to know the customer (a process they call KYC) and protect everyone’s security to the best of their ability.                

 

In general, research suggests that consumers worry most about using credit and debit cards on online sites of any kind. However, in the world of bill payment (as opposed to online shopping for example)  these risks are not as great. Even a person with a stolen credit card number is highly unlikely to pay a bill for another person (assuming he or she had the bill details to enter) and even if they did, the risk would be with the merchant and not the consumer. So what about merchant side risk?

 

For a merchant, the greatest risk is charge-backs. This is where the credit or debit card holder disputes the transaction anywhere up to 6 months after the transaction date.  Charge backs can either be because the card holder disputes that they made the transaction at all (i.e. it was a stolen or fraudulent), or because they did receive anything in return for the payment that was made. The second reason for chargebacks in the bill pay space is very rare, but the first reason-theft or fraud is obviously quite common (with total estimated costs of just under £1 billion in the UK in 2010). This is why online bill-pay web sites need to take so much care to ensure that card holders (who are not present as they are in a retail transaction) are who they say they are.

 Summary

In the final analysis, for those EBPP sites that have a clear secure socket payment layer (SSL), have clear statements about security of information and sound compliance and a well-structured registration process, consumers face very low levels of risk (with a very low liability even when a rare problem may arise in any case). The merchant however, faces potentially much more risk arising from both debit and credit card fraud (and therefore possible charge-backs), but risk this can be mitigated with good consumer checking processes that are made easy for every customer to the site to use.

Are emailed invoices just as good as digital ones?

Most people now believe that electronic invoicing offers significant advantages over paper-based processes (saving direct costs like printing an invoice, stamping an envelope and sending it in the mail etc. and saving indirect costs such as lost invoices, late and missing checks in the mail and often much more difficult reconciliation). However, there is not always agreement on what the term “electronic invoicing” actually means and in this brief article we will look at two very different kinds of e-invoicing-emailed invoices and digital invoices. These are often perceived to be similar and/or equivalent methods but, as we will see, they are actually quite different.

Emailed invoices

Sending an invoice via email is usually done these days by attaching the invoice as an Adobe PDF document. This allows the invoice to be sent cheaply and quickly to the recipient who can use a free product (Adobe Acrobat Reader) to open and view it. The simple idea here is that once the customer has reviewed the document (and even saved it to his or her hard drive) he or she can then pay it. In theory (especially in Business to Consumer or B2C markets) the invoice is not only sent out quickly (and at much lower costs than traditional invoicing methods) but means that the customer can send back a check or phone in a credit card payment within hours or just a few days (and well ahead of the latest date he or should could technically pay) thereby helping to accelerate merchant cash-flow. Unfortunately, although this works in some situations, the process is rarely this smooth and a number of problems can occur.

Firstly, the merchant needs to have a customer’s email address to be able to send a PDF. Secondly, the PDF is still a flat document which most customers will not only have to open, but will often print and put in a pile to deal with later, when they are ready (just like receiving the paper-based invoice in the mail). This means that the customer may wait as long as they did before to pay the invoice (assuming they do not lose their printed piece of paper in the meantime having deleted their original email). In addition to all of this, an emailed PDF does not encourage the customer to pay by electronic means any more than an invoice arriving in the mail does. Research suggests that customers actually often like to have the option to pay online by debit or credit card for example and can often only do so by calling the merchant (and having to spend time and effort, and within the hours of business operated by the call-center). Finally, in Business to Business (or B2B) invoicing, the emailed PDF presents a whole new layer of challenges as these often require a digital signature. PDF technology is now much better at allowing digital signatures to be securely added to invoices when they are sent in the mail. However, the process is by no means simple and presents many logistical issues, particularly when multiple approval signatures are required.

Digital invoices

A digital invoice is available at a web site. Sometimes this is embedded in part of a merchant’s web site or it is “hosted” on a third-party web site (to which customers can go directly or can be redirected from a link on a merchant’s web site). In most cases, the digital invoice rendering process is even quicker than emailed invoices, as there is no need to generate a PDF and attach it to an email address. In addition, although a customer may be notified that a new invoice is available via email, it is not necessary to have an email address (as the customer can be notified about the web address by normal physical mail and then subscribe to the web site service to be later notified by either email or even their mobile phone –via SMS). In practice this means that digital invoices will often collect or “scrape” new email addresses from customers progressively.

Perhaps most importantly, a digital invoice is viewed in a truly online way (and does not require printing (as it can be easily stored and retrieved permanently or resent by a merchant at almost no extra cost). This means that not only can the customer view the invoice (in as much detail as they wish) but they can use many online features to both deal with the invoice (save it, schedule it for later payment or send it on for viewing or approval to another person) or even just pay it immediately of course. And if they do choose to pay it immediately, they typically get to do so via their debit card if they want to use their current bank account or by a variety of credit card options (and in some cases even by cash by printing out a voucher and taking it to a local newsagent or local store that takes cash payments). This is therefore much more likely to accelerate merchant cash-flow than in the emailed invoice situation and means that the payment is much easier to reconcile (as less difficult to reconcile checks or phone-based payments are being made). Finally, the invoice recipient (whether it is a B2C one or B2B one) can elect to pay a bill 24/7 as the bill presentment and payment web site is truly “open-all-hours”.

Conclusion

Emailed invoices are superior to traditional invoices sent in the mail. However, they fall far short of full digital invoices, which offer many additional benefits (which translate into much greater time and cost saving for the merchant). These two approaches are therefore far from equivalent and a merchant can realize considerable advantages by upgrading from an emailed invoice to a full digital one.

Using a Range of more “Active” Incentives to adopt e-billing and payment

With a planned and consistent information-led approach which stresses the many benefits of the transition, as much as 15% of a customer base may adopt your new electronic billing and payment system. This information-led approach is like to use a range of gentle encouragement approaches such as:

1. Letters explaining the new system
2. Short notices about particular benefits
3. FAQ’s on a merchant website explaining the new system
4. Pamphlets/Leaflets/Brochures on the new system
5. White papers (on benefits such as being more “green”)
6. Trials (try using the system but keeping getting paper bills)
7. Offers such as planting a tree (for every 10 customers who switch to e-billing)

However, to get the majority of customers to alter old habits, greater incentives are needed and this will depend on each merchant deciding how much extra pressure to change to apply. This falls into two categories-what we call “active encouragement” and “aggressive encouragement”. Let’s look at each of these in turn.

Active encouragement

Active encouragement uses a range of methods to incent customers to switch but all of these fall short of forcing them to change or imposing new costs on them. Examples here include:

1. Offering donations to charity (for each customer/every 5 customers who switch)
2. Using email campaigns to use e-billing
3. Engaging in planned text messaging campaigns to explain the benefits
4. Educating customers over the phone (via a call-center) on a push basis
5. Running advertisements (print, radio and even cable)
6. Running sweepstakes or other competitions around the new e-billing system
7. Using on-hold messaging to encourage adoption

If gentle encouragement achieves the first 15% to adopt e-billing, the above may add another 25% over a 3-6 month period (with consistent effort).

 

Aggressive encouragement

Give that the first two encouragement approaches described above may convert 40% of the customer base to the new billing system on a combined basis, the last 60% may need to be pushed even harder and this is what we call “aggressive encouragement”. Examples of this might be:

1. Running a loyalty points scheme for prizes (in-house or third-party) for switching customers
2. Offering coupons or discounts for products or services (in-house or external) when switching
3. Offering third-party gift certificates for adoption
4. Forcing customers to opt-out of electronic billing (simply by turning off paper bills for example)
5. Offering discounts on bills viewed and paid electronically  (e.g.1%, 2% or even more off)
6. Charging customers if they want a printed invoice
7. Charging customers a surcharge to call in make to a call center

These more aggressive encouragement approaches need to be carefully discussed before implementation and will also depend on the new system being offered. In the case of using a service such as BillSwyft for example, customers can still print invoices and generate PDF’s, thereby making the switch to no paper rather easier to bear.

Moving Customers from the Paper-based World of Bills and Checks into the Digital age?

To encourage customer to adopt an online billing solution of any kind takes careful planning and creativity and there are several “angles” a biller can take in the general promotion of the benefits of the change to e-billing. A few of these are:

1.          The Informational Angle – simply communicating that the new system is available and is easy and quick to use and should be tried –the more you can get the pioneer and early adopter types to make the switch the better-some of these may even provide testimonials to be published on a web site to the rest of the customer base.

2.          The Green Angle – The fact that the new bill presentment and payment system can save paper (and even save water, electricity and fuel) is a powerful reason for many customers to “do their bit” and make own small contribution to the sustainability of the planet.

3.          The Benefits Angle – In the early stages, customers will not be interested long communications about features of a new system (and may even resist any proposed change). However, by focusing on the specific benefits of the new system (such as speed and convenience, or the capacity to save them time and money in an increasingly busy world) this is often more than enough to get them thinking about making the change.

4.          The Rewards Angle – Merchants can offer specific rewards and incentives (points, gifts and prizes etc.) to customers to get them to switch to an electronic billing and payment solution.   

In some cases, a merchant will want to adopt just one of these angles to get customers to start thinking about using an online bill view and payment solution, but it may also be useful to adopt more than one angle or even switch from one to another progressively over time and therefore use all four of the above options. Of course, for the bulk of customers you may need to use the rewards angle (and actively or even aggressively) to get them to take action.

Educating Customers to Adopt an Online billing System

Whenever a merchant introduces a new online billing system, however basic it may be, it is extremely important to educate customers in how to use it. Failure to do this will mean slow take up or even refusal by many ever to use the system.  

 

In the initial stages a merchant should ideally start to educate customers about the new electronic payment channel they have to offer and its specific features and benefits (which help customers to feel more comfortable to try it out) in general terms. The best way to therefore inform customers of a change such as this is to use every available communication channel and to do so frequently. For example, it may be a good idea to think about using some or even all of the following possible channels:

•      Evolving several leaflet(s)/pamphlet(s)/brochure(s)/booklet(s) on what the new electronic payment channel is and how to use it

 

•      Writing a letter to all customers about the new channel and how it is best used

•      Sending one or a series of informational emails about the new service and its various features

•      Designing your on-hold messaging to include information on your new payment service

•      Putting special new payment channel/system FAQs on the main web site

•      Putting a small advert and even brief explanatory information on the physical bill that is sent out to all customers

•      Putting a Quick Response or QR code on all printed bills to allow customers to go straight to your new electronic presentment and payment channel (even from a mobile device).

Another important part of the ongoing education process is to ensure that internal support staff are well-briefed about the new online bill presentment and payment system and can help customers with their questions and early attempts to use the system. This is particularly important when customers raise billing queries or when they wish to make payments over the phone (and can be shown immediately what to do to make the same payment online each month quickly and easily, and even set it up as a recurrent payment if the individual wishes).

 

Customer education is often a forgotten part of introducing a new online billing system but with a little planning and effort it can make take-up considerably quicker and less painful for all concerned.

Taking the First Steps to Getting Customers to Use a New Online Billing Solution

Once a payment strategy has been developed by a merchant and the costs as a proportion of sales calculated carefully the move to a more electronic or digital system for presenting invoices and collecting payments can be planned and executed. 

But merely introducing a new web-based bill presentment and payment service (in any fashion) does not mean that customers will necessarily use it and we therefore need to plan to create reasonable levels of early adoption and conversion to the new online solution over time (so that it eventually becomes the dominant way to view and pay invoices and allow a merchant to realize the full benefits of this). In this booklet we will therefore describe some ways in which this can be done.

Initially Informing All Customers
Once an online billing and payment system is available, the very first step that a merchant needs to take is to inform the customer base that this new “channel” is available to use. Many merchants avoid doing this and expect their customers to almost “stumble across” the option or in some cases, inform customers only once at the outset and then fail to remind customers about the option again in any way. This may be fine for many of the “pioneers” and “early adopters” in the customer base but others will need greater “pushing” and more than one time, of course.

Segmenting the Customer Base

Although the same initial general message about the new online billing and payment system can be sent to all customers (and pretty much in the same language) some later messages may need to be tailored to particular parts of the customer base. For this reason, another important step in getting customers to use the new service at the earliest stages is to analyze and then segment customers so that specific messages to them may then be crafted.

This segmentation may occur in several ways but some examples are indicated in the table below with comments on what could then be crafted as a result, shown on the right hand side:

Segmentation	Specific communication messages
By age (if the data is available)	Although it is always something of a generalization, younger people are usually quicker to adopt internet technology and may like access to a billing and payment system via not only a computer but using tablets and mobile phones. And older customers may appreciate that a service support person will help them to walk through how to view their bill and make an online payment once, twice or even three times, if needed.
By the average length of time it takes the customer to pay	A customer who pays a bill quickly may be attracted to new system features such as bill scheduling or recurrent payment set up (set and forget). Alternatively, a customer who pays slowly or even late may appreciate that they can set up calendar alerts to make payments or even set up their own email alerts as wanted.
By the way they choose to pay their bill (by check, cash, credit card, debit card or ACH, if available)	Some customers like to pay by check, some by cash, some via ACH or direct deposit and some by card. Depending on the electronic solution, a merchant may be able to offer new payment methods (credit cards or ACH for example). The new payment methods are likely to help accelerate cash flow or even bring new customers to the table, in some cases.