Consumer debt has risen to unprecedented levels in the UK, presenting a serious challenge for companies that attempt to collect a growing mountain of unpaid bills. Recently, energy providers have resorted to injecting significant resources into financial support schemes in an attempt to lighten the load for those hardest hit. And many organisations in other sectors – from local councils to private landlords and housing associations – have taken steps to offer similar support.
The current consumer debt crisis hasn’t just illuminated how vulnerable consumer finances have become, but it’s also shone a spotlight on the inefficiencies of traditional debt collection methods. In this article, we’ll look at the scale of the challenge faced by many organisations and offer an Open Banking-powered solution.
The challenging issue of rising consumer debt
As of December 2023, UK households owed energy companies a record £3.2 billion in unpaid bills. (1) The increase is understood to be largely due to the rising cost of energy, compounded by the existing financial challenges already faced by millions of people across the country. While households are under significant financial strain, energy providers are being forced to invest millions into financial assistance.
EDF, the UK’s fourth largest energy provider (2), reported a worrying 52% increase in customers with unpaid bills between December 2022 and September 2023. (3) In response, the energy provider launched its ‘fresh start’ initiative, seeing it write off £1,250 in unpaid bills for thousands of its customers. And EDF isn’t alone in providing financial support to its customers. E.ON, the UK’s second largest energy provider, has invested £150 million of support as part of its ‘winter support scheme’. (4) And OVO, the UK’s third largest provider, has invested £40 million in its Customer Support Package to help its customers. (5)
Philippe Commaret, Managing Director of Customers at EDF, is concerned about the wider impact of customers falling behind on their payments: “More customers are falling deeper into debt with no real long-term solution in place to help them. Left unaddressed, the situation will drive up costs for all households, with other customers forced to pick up the bill.” (6) Meanwhile, EDF’s own research suggests nearly 65% of households are opposed to bill increases covering costs incurred by other customers.
In Scotland, over 270,000 people missed a council tax payment in 2023. (7) And because council tax is considered a ‘priority debt’, councils often use aggressive recovery methods such as bailiffs and courts to enforce the recovery of funds. In England, over three million people were taken to court for council tax debt between 2021 and 2023. (8)
In response, local councils are supporting people who struggle to pay their council tax in several ways. This includes offering Council Tax Support (a scheme to reduce council tax bills for people on a low income), providing exemptions and arranging new payment plans for those facing financial difficulties. The pressure on councils to recover funds is severe. With increasing costs, decreasing or frozen government funding and an increasing number of people falling behind on their council tax payments, local councils are facing a total funding shortfall of around £550 million. (9)
Rising consumer debt is forcing many companies and organisations to invest millions of pounds into support schemes, and this could result in bills going up to cover the investments. So what can be done?
Could Open Banking Payments provide a solution?
When utility providers attempt to reclaim debt, many rely on outdated Interactive Voice Response (IVR) systems to take payment over the phone. But while IVR technology was once cutting-edge, offering a way to automate customer service and payment processes without an employee picking up the phone, its limitations have become increasingly apparent as technology has progressed.
As well as being relatively complex for customers, requiring the input of payment details via touch-tone (often frustrating and prone to errors), IVR’s limited identity verification options leave the door open to fraud. Additionally, ensuring an IVR payment system complies with Payment Card Industry Data Security Standard (PCI DSS) requirements adds more complexity and significant ongoing cost for the utility provider.
At a time when customer experience and data security should be at the top of every company’s priority list, IVR systems are falling short in meeting those requirements. A new approach is needed that’s cost-effective, secure, compliant and offers a good customer experience.
Open Banking has been transforming the banking and financial services sectors in a variety of ways for several years. It’s enabled money management apps to aggregate several bank accounts into one central dashboard and is now introducing variable recurring payments (VRPs) which adjust based on a customer’s income or spending habits, all importantly with the customer’s consent.
With Open Banking, utility providers have the ability to reclaim outstanding bill payments in a much more customer-friendly, cost effective and secure way than existing IVR systems. Moneyhub now supports pay-by-link, giving customers the ability to make payments directly on their mobile devices without sharing payment details – providing peace of mind to the consumer and reducing the escalating cost overhead of data encryption for utility providers
Similarly for local councils, Open Banking could be used to take council tax payments on terms that are more viable for residents, resulting in increased council tax income and less money spent on support schemes and legal recovery costs.
How Moneyhub’s Smart Payments makes debt collection more efficient
Moneyhub’s Smart Payment technology makes use of Open Banking to enable companies and organisations to more efficiently and effectively support people who’ve fallen behind on their payments.
At the heart of Moneyhub’s Smart Payments lies the pay-by-link option: a simple yet effective and secure method of accepting payments. It enables utility providers and other organisations to send a payment request to a customer via email, WhatsApp message or even printed as a QR Code on a paper invoice. The link allows customers to initiate payments directly through their banking app, authenticated with secure bank-level biometric identification. As well as streamlining the payment process, it adds a level of security that IVR systems simply can’t match.
Another important feature, key to aiding the reduction of customer debt, is the forthcoming ability to automate variable payments. This allows a company to set rules that dictate the timing and amount of payment to request. For example, a rule could be set to request payment based on a customer’s financial situation, such as setting bill payment frequency to match their income frequency, allowing better budgeting. Today, Moneyhub is helping businesses prepare for Variable Recurring Payments, exploring commercial models that will redefine consumer propositions for years to come.
Moneyhub’s Smart Payments technology offers a win-win situation for organisations and their customers. Customers benefit from an easier, more secure and more affordable method of making a payment. And government organisations and businesses can benefit from a cost-effective, secure and compliant solution that improves cash flow since it increases the chance of a customer being able to make a payment, as well as minimising the lag between billing and collection. Importantly, Smart Payments helps improve the customer experience with a payment solution that’s both easy to use and secure, enhancing customer satisfaction and loyalty.
In essence, Moneyhub’s Smart Payments technology utilises the power of Open Banking to address the challenge of increasing consumer debt.
Find out more about Smart Payments.
References
(1) https://www.ofgem.gov.uk/publications/welcome-fall-price-cap-high-debt-levels-remain
(2) https://www.comparethemarket.com/energy/content/big-six-energy-suppliers/
(3) https://www.energylivenews.com/2023/12/15/edf-reports-52-rise-in-customers-with-unresolved-debt/
(4) https://www.eonenergy.com/newsroom/support-available-for-winter-energy-bills.html
(5) https://www.ovoenergy.com/customer-support-package
(6) https://www.energylivenews.com/2023/12/15/edf-reports-52-rise-in-customers-with-unresolved-debt/
(7) https://www.scottishhousingnews.com/articles/citizens-advice-scotland-over-270000-people-missed-a-council-tax-payment-in-2023
(8) https://inews.co.uk/news/council-tax-debt-3-million-uk-2387586
(9) https://www.lgcplus.com/finance/districts-forced-to-make-impossible-decisions-over-service-cuts-24-10-2023/