Despite the explosion of digital and electronic payments in recent years, in the UK many transactions are still settled by cash or cheque.
For example, drinks wholesalers send deliveries to village shops or restaurants and the delivery van returns with the cash payment. This is less than ideal. Asking drivers to handle cash puts them at risk of crime. At the very least the driver will need to be insured. There are frequent delays as cash and cheques can sit around in the business for days until they are paid into the bank.
Companies providing services and utilities need to collect regular payments from their customers. These customers want a variety of alternative payment methods, including cash, cheque, credit and debit cards, and online payments. Handling payments via cash and cheques can be costly to a business, impede cash flow, and introduces uncertainty. As a result, companies are eager to offer more efficient payment mechanisms to their customers, such as direct debit, and often offer discounts to those who opt to make payments this way.
Direct debit is hugely popular with consumers and businesses. It is wonderfully convenient and helps to ensure bills are paid on time. Around two thirds of consumers use it. They can simply forget about paying their TV licence or gas bill each month. The money just leaves their account on cue.
Unfortunately, not everyone embraces direct debit. According to BACS, 7 per cent are reluctant to use it and a larger number – 16 per cent – feel positive about direct debit but prefer to use it only selectively, the main reason being they do not wish to lose control of their bank account. The thought of an external agency being able to reach into their account and withdraw money seems a little too intrusive. Furthermore, there is a perceived danger that the money will move at an inconvenient moment and the account might suddenly be pushed into overdraft. BACS figures show that more than one in five consumers has stopped paying their mobile phone bill by direct debit and 12 per cent stopped paying their council tax because of this worry.
Mark D. Evans, Global innovation lead, HSBC payments and cash management
This proportion of consumers reluctant to use direct debit is a challenge for businesses. What if there were a way to reassure consumers and drive adoption efficiently, using mobile?
HSBC Mobile Collections will do exactly that. The service will be designed to send an SMS to the account holder every time a direct debit is requested. The message will include the amount, the due date and what the debit is for. They can reply “yes” or “no” plus a security code to permit or deny the request for payment. SMS approval removes the need for manual input of reference numbers and card payment details. And this layer of approval ensures there is more control and visibility for the account holder. No more unexpected deductions.
Mobile Collections will also be a better way to process business-to-business transactions
The service is designed to work via SMS to ensure that everyone can take part. There will be no need for a smartphone. No app to download. For consumers, it will really be as simple as responding to an SMS. HSBC Mobile Collections will enable reluctant consumers to sign up for direct debit with more confidence that they remain in control of the payment process.
The benefit to corporate billers is significant too. As consumers switch to direct debit, the cost of transactions is lowered. Cash flow becomes smoother – just ask a finance director how important that is. Reconciliation efforts are minimised. Funds move directly from the customer’s account to the biller’s account. Everyone is better off.
Mobile Collections will also be a better way to process business-to-business or B2B transactions. The client will enrol with direct debit. Then for each transaction they will be sent an SMS containing the deal details. They can reply “yes” or “no” as appropriate. Deal done. No cash to handle. No cheques. Delivery drivers, now relieved of payment collection duties, can breathe a sigh of relief and the client can authorise the payment by text message as the products are being loaded at their premises.
SO EASY TO USE
Enrolling customers will be straightforward. During the direct debit enrolment process, customers will simply indicate they would like to confirm each transaction using the HSBC Mobile Collections service.
The system will be simple for corporate billers too. Cloud-based, the interface will be accessed through a web portal, which will contain customisable reports, handle queries and run key performance indicators. Adding customers will take just one step: the corporate biller will need only to add the sort code, account number and mobile phone number of the customer. This information is only required once. When a payment needs to be collected, the corporate biller will input the mobile number, an amount and an optional due date, and an SMS will be sent. The “yes” or “no” response will determine whether or not the direct debit payment is processed.
Transactions will be recorded in files which will be easy to integrate into a business’s existing system and are designed to remove the need for manual intervention.
HSBC Mobile Collections in the UK will be based on the BACS direct debit payment system, which is already universal in the UK. Most bank account holders, regardless of their bank, will be able to use it. It will offer the highest security level, minimising the transmission of bank account numbers, sort codes and credit card details. The risk of forged cheques, counterfeit bank notes and cloned credit cards will be mitigated.
THE FUTURE
HSBC Mobile Collections is launching soon in the UK.
Settlement speeds are increasing with the adoption of faster/immediate payment schemes. Some billers will prefer to stick with the current payment choices, but for sales reps that negotiate deals on the road or for deals where the quantity of goods changes at the last minute this could be a welcome change.
HSBC has identified demand for this type of service in multiple territories and HSBC Mobile Collections will expand into other countries. For example, in the Asia-Pacific region, where the use of cash for B2B transactions is significant, HSBC have run trials in the region, to help businesses and their customers benefit from the transition away from cash to a more secure, transparent and controlled payment infrastructure. The underlying mechanism may vary from territory to territory. In some it will be based on direct debit functionality, while in others it could be a mobile wallet making the payment. But the principle of asking payers to authorise transactions via mobile has potentially global application.
Mobile Collections is a platform ripe for innovation. It’s an exciting time.
Q&A
Frances Howell, head of payments and cash management at HSBC Commercial Banking, discusses the benefits of HSBC Mobile Collections ahead of its launch
What will be the benefits of HSBC Mobile Collections using the direct debit system?
If a business doesn’t have full penetration of direct debit then HSBC Mobile Collections will be a good solution to increase direct debit uptake by addressing customer concerns around visibility and control of their account. By improving the uptake of direct debit, the reliance on cash or cheque payments will fall, which is great news for cash flow, and for improving overheads associated with payment processing. There’s also a reconciliation issue. If companies are spending a lot of time resolving problems with cash and cheques, it’s not hard to see how moving consumers over to direct debit would help.
What will HSBC Mobile Collections bring to businesses?
HSBC Mobile Collections was designed with businesses in mind. In the UK it is surprisingly common for sales reps and delivery people to handle cash and cheques for goods. HSBC Mobile Collections could be used by businesses to promote cashless transactions using the direct debit platform, with the reassurance of an SMS layer to ensure the payer is happy. We can see opportunities for many sectors using HSBC Mobile Collections.
Will it be hard to persuade customers to use HSBC Mobile Collections?
In the UK HSBC Mobile Collections will be supported by direct debit, which is extremely well known and trusted here. Everyone knows it and knows how it works. HSBC Mobile Collections will directly address the concern a number of customers have, which is that money can leave their account without them realising. There’ll be no extra cost for them, other than standard network SMS charges, and nothing to think about beyond replying to an SMS when it is time for a payment to be made. With that level of familiarity and ease of use, I can see few issues with getting businesses and their customers to use it.
How does the HSBC Mobile Collections offering fit into the overall payments landscape?
HSBC Mobile Collections will be an exciting new offering, and sits alongside many payment technologies we’re developing to help businesses and their customers. These new services will be designed to help customers be more efficient when making payments. They will focus on helping businesses manage multiple currencies, foreign exchange, and understanding underlying transactions and beneficiary data. These new advances can be explored in more detail when we conduct a cash management review for a business. Payments is a fast-moving industry and we at HSBC are accelerating our development of products in order to help our customers whenever their needs change.
