Household financial pressures are mounting. Here’s how we help companies protect their customers

May 24, 2022 | By James Bushby

When Prince Charles delivered this year’s Queen’s Speech to Parliament in the UK, it was unsurprising to see the cost of living feature so prominently.

With 1.5 million households currently struggling to pay food and energy bills, it’s been warned that 250,000 households could ‘slide into destitution’ next year as a result. Inflation is now at a historic high and the current economic climate will likely remain challenging for some time. This trend isn’t just restricted to the UK – financial struggles caused by rising bills, such as a hike in fuel prices, are being felt around the world as the war in Ukraine ravages on.

When people face mounting financial pressure, they can struggle to make bill payments. While Direct Debit is a convenient and easy way to pay utility bills – and the most popular method in the UK – for people in financial hardship this fixed, regular payment can be challenging. Our research with Forrester Consulting during the pandemic found that 44% of people felt that their worsening financial situation had forced them to miss multiple bills.

Only around half of regular earners say they are satisfied with the way utility companies expect them to pay bills, dropping to 30% for vulnerable customers. It is estimated that 7.25 million will be working in the UK’s gig economy this year, according to our report 'Fuelling the Global Gig Economy,' yet the Forrester research showed only 64% of gig workers were able to meet their monthly bill payments, in comparison to 85% of regular income payers.

Without consistent streams of income – and with the government warning they can’t completely shield people from the cost of living – paying a fixed monthly amount at set times can be hugely impractical.

Modernising the billing process

Sadly, bill payments in the UK don’t reflect the technology we have available in payments today. 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. 

The lack of innovation in the UK is leading to tremendous cost for billers. For example, the knock-on effect of chasing late or failed payments is costly for billers, who told us that between 3% and 5% of all Direct Debit requests fail. On average, half of payments that need to be chased cost billers between £150 to £350 each, and a further 39% cost them between £350 and £1,000, the Forrester research showed.

In contrast, we’ve seen significant progress in digital bill payments elsewhere in the world. In Norway, for example, eFaktura distributes 100 million invoices annually to 2.6 million Norwegians, streamlining invoice handling and cutting costs in the process. And in Denmark, creditors use Betalingsservice to initiate payments between the creditor's account and the debtor's account.

We know that providers are aware of the need to update the billing process, but many say they are unsure where to start.

Rethinking how bills are paid and customer communications managed

With so much uncertainty still on the horizon, now is the time for billers to harness the power of new technology solutions for the benefit of their customers.

Launched in 2020, 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. Mastercard is the first company to develop services that adhere to this framework, launching our solution in April 2021. Mastercard Request to Pay includes a secure messaging service, allowing billers and payers to communicate safely and in real time via the their financial institution’s app. Customers can see when bills are due and can agree with their biller to pay in full, in part, or request a delay if they are facing any issues meeting the deadline. And because the biller’s verified payment information is included within the ‘Request to Pay’ message, it eliminates the risk of accidental payment misdirection and push payment fraud.  

There’s a high and growing demand for these services amongst consumers and billers alike around the world, which is why our solution is available globally. In the US, it’s called Mastercard Bill Pay Exchange, and we now manage 45 million monthly electronic bill payments for over 155,000 billers. We expect this appetite to be replicated in the UK and many more markets globally, particularly against a backdrop of economic uncertainty. Customer late payments are time-consuming and expensive for billers, but our Request to Pay service means customers can quickly and easily contact companies to raise any queries or inaccuracies. Such transparency will help 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, our Request to Pay service can 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

Through our bill payments services, we’re 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, request to pay solutions have 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 does offer far greater flexibility and a much faster, secure way to communicate with billers during difficult times – something we can all welcome.

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James Bushby, Senior Vice President, Strategic Sales – Real Time Payments, Mastercard