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Failed Direct Debits Cost UK Business Customers and Money

Research From Bottomline Technologies Unveils Major Inefficiencies in Direct Debit and Direct Credit Payments Processing

Key research findings:

  • 95% of failed Direct Debit/Direct Credit transactions are due to human error.
  • 71% of failed Direct Debit/Direct Credit transactions are due to sort code or bank account number errors.
  • Fraudulent activity is the most time consuming error that finance departments experience (28%).
  • 71% of finance departments say that failed Direct Debits/Direct Credits damage customer and employee relations.
  • 43% of finance departments spend more than 4 hours a month rectifying failed Direct Debit/Direct Credit transactions at significant cost.
  • 14% of consumers have cancelled a policy or subscription due to complicated DD or DC set up processes and 18% will actively look for a competitive alternative.
  • The majority of payment failures (63%) occur in payments made to the business by a customer.
  • But 65% of consumers insist the recipient organisation is to blame.
  • 51% of businesses believe that verification and validation software reduces cost of managing customer queries; delivers better cash management visibility (42%) and provides better customer acquisition and sign-up process (40%).

New independent market research by industry analyst, Redshift Research, on behalf of Bottomline Technologies (NASDAQ: EPAY) has found that almost a quarter of UK individuals (23%) have experienced a problem setting up or amending a Direct Debit (DD) or Direct Credit (DC) in the last 12 months, with 14% of consumers cancelling a policy or subscription because the DD set-up process was too complicated. With almost 6 billion payments processed every year, and each failed transaction around £50, this represents a significant loss in revenues and customers for UK business.

The survey, which sampled the views of 200 UK financial decision makers and 1,098 UK adults, also found that on average 95% of failed DD/DC transactions are due to human error, with 71% of finance departments citing errors with either the bank account number or the sort code as the most common reason for the transaction to fail.

Whilst 71% of businesses recognise that failed transactions damage customer and/or employee relations, businesses also need to take into account the significant cost of each failed transaction. As many as 60% of business admit incurring a cost of £50 or more for every failed DD transaction, whilst 43% of finance departments spend more than 4 hours a month, and 11% spend more than 10 hours each month, fixing problems with DD transactions.

Financial Services, Utilities, Telco/mobile and membership companies are amongst the top five industries where consumers have experienced problems.

The survey also found that fraudulent activity is the most time consuming error that finance departments experience (28%), with sort code errors and bank account number errors ranking as second and third respectfully.

Extraordinarily, 6% of consumers admitted to intentionally completing a DD mandate incorrectly, with 45% of these respondents deliberately using the wrong bank account number and a third of these putting the wrong sort code or address details down.

Jim Conning, Payments Director, Bottomline Technologies, comments, “This confirmation that almost all failed DD/DC transactions are caused by human error, clearly highlights the need for a better checking process at point of entry. The simple addition of technology would transform the process and save substantial time and money.”

Conning continues, “The key is not only to check that a bank account and sort code are valid - that a specific bank account number fits the rules that associate it with a specific sort code - but also to verify the account information in real-time, so that errors can be resolved there and then at point of entry. With this combined approach, companies are protected from deliberate fraud and inadvertent error.”

Conning concludes, “Direct Debits and Direct Credits are compelling payment methods that can offer excellent cash flow improvements for businesses. But the current failure to check account information in real-time is clearly undermining the experience and disenfranchising hard won customers. Human error is unavoidable; it is only by imposing real-time control that organisations can flag and address mistakes up front to reduce Direct Debit and Direct Credit failure and truly realise the benefits of more predictable cash flow.”

The research was conducted by Redshift Research, an independent market research analyst and a member of the Market Research Society on behalf of Bottomline Technologies.