Protecting customers as pressure on household finances mounts

With the UK facing an escalating cost of living crisis, flexibility is needed more than ever for those struggling to make their bill payments. Mastercard’s James Bushby shares highlights of the company’s research on the challenges for billers and the urgent need to modernise payments systems.

Recent months have placed immense financial pressure on many UK families. In fact, Citizens Advice recently warned that the combination of record-high inflation and skyrocketing wholesale energy prices will leave the equivalent of 3.2 million households struggling, and several MPs recently called for VAT to be scrapped on energy bills to address the cost of living crisis.

When people are facing mounting pressure on their finances, they struggle to make bill payments, but these tend to be rigid without any room for flexibility. While Direct Debit is a convenient, easy way to pay utility bills – and the most popular method in the UK – for people in financial hardship this fixed, regular payment can prove challenging. Our research found that 44% of people feel that their worsening financial situation has forced them to miss multiple bills over the past 12 months.

At present, only around half of regular earners are satisfied with the way utility companies expect them to pay bills, which drops to 30% for vulnerable customers. For people with variable incomes – such as those on zero-hour contracts, freelancers, and gig workers it is estimated that 7.25 million will be working in the UK’s gig economy by 2022. Yet, our research showed only 64% of gig workers were able to meet their monthly bill payments in the last year, in comparison to 85% of regular income payers. Without consistent streams of income, paying a fixed monthly amount at set times of the month can be hugely impractical.

Modernising the billing process

Bill payments simply do not reflect the technology we have available in payments now. Where other areas of customer to business payments have moved forward to offer greater choice and flexibility – such as contactless and mobile payments – billing has lagged behind this trend.

There is a tremendous cost relating to late or failed payments, due to this lack of innovation in the bill payments space. Research has shown that the knock-on effect of chasing these late payments is costly and inconvenient for billers such as utility providers. Billers told us that between 3% to 5% of all Direct Debit requests fail. On average half of the payments that need to be chased cost the biller between £150 to £350 each and a further 39% cost them between £350 to £1,000.

We know that providers are aware of the need to update the billing process and align it with customer expectations, and utility companies are keen to embrace innovation to support vulnerable customers. But while over 80% of utility companies have expressed a desire to adopt a more streamlined and cost-effective method to help struggling customers, they say they are unsure where to start.

Recently, Seven Trent Water won funding from Ofwat’s Innovation in Water Challenge for its plan to use behavioural science to improve engagement with hard-to-reach customers and communities, including support to manage bills.

Rethinking how bills are paid and customer communications managed

With so much uncertainty still on the horizon, and talk of millions being pushed into fuel poverty, now is the time for billers to harness the power of new technology solutions for the benefit of their customers and enhance their customer engagement strategies.

Request to Pay is a new framework from Pay.UK to help improve the bill presentment process by allowing people to connect directly with their billers. Through this solution – which could be embedded within a trusted banking app – customers can see when bills are due and communicate directly to their energy provider about the bill. They have flexibility in how they respond as they can then decide to pay in full, in part, or request a delay if they are facing any issues meeting the deadline.

Customer late payments are time-consuming and expensive for billers, but Request to Pay will offer two-way communication between providers and customers. Accessing this service through a secure and trusted mobile application, customers can easily contact companies to raise any queries or inaccuracies quickly. Such transparency will help to effectively allow billers to plan for any delays in the payment process and reduce the burden of inflexible payments on those who are most strapped for cash.

For utility providers where there can be a charge on top of the recurring monthly bill, Request to Pay could also help customers prepare for any additional costs. For example, if a customer who typically pays £20 a month for a core service surpasses their usage and receives a bill with add-ons for £30, better forewarning via an app could help customers budget earlier and avoid going into the red.

It is also an ideal solution for those people who choose not to use Direct Debit at the moment. People who prefer to pay bills over the phone or in a bank branch to ensure they have control over their outgoings would be able to save time and effort by switching to a Request to Pay option.

Now is the time

Mastercard was the first service provider to offer end-users this type of bill management within PayUK’s framework, giving customers greater flexibility and control, as well as giving billers greater predictability when collecting payments and more efficient ways to handle disputes.

By putting control into the hands of the consumer, utilising the Request to Pay solution has the potential to address many current issues experienced by billers – and their customers – and change the way people settle their day-to-day bills. Of course, this is not a silver bullet to solve the financial pressures facing households, but it would offer far greater flexibility and much faster, secure way to communicate with billers during difficult times – something we can all welcome.