2020-05-20

Case study: Payments and trust (Monzo)

Credit (and debit) cards are immensely useful, and I am even more appreciative of them after the fiasco with a holiday refund. Amex were great.

But there is always a balance of trust with customer and supplier, and a range of ways to manage that. Cards provide a good means to handle suppliers that fail. Direct Debits also offer some high level of bias towards the customer, which is very important because of how easy it is to collect payments. This ability to claim for a mistake helps ensure Direct Debits are rarely used for fraud.

For the most part, whichever type of payment is used, where supplier and customer are both honest, all goes well. Sadly when one or the other is not so honest, or even something unexpected, like a global pandemic, happens, the way you pay for things matters.

But some times, as a supplier, you want a reliable payment that you know cannot be clawed back or reversed. This is, of course, a huge bias towards the supplier, and away from the customer, but it is also rather "traditional" in that cash payment was always irreversible.

Bank transfers via BACS, or fast payments, provide this - they are like cash, and generally impossible to reverse as the person paying. Obviously the person paid can send money back if they want. They do create an audit trail, you know where the money went (unlike cash), which helps with any possible fraud.

As a business we do a lot with Direct Debits. This puts a lot of control in the hands of the customer who can make a DD guarantee claim at any time, and we would have to reimburse the bank. Thankfully this is rare, but it does allow some opportunity for fraud by a rogue customer using someone else's bank details. This is one reason why suppliers are expected to check the bank details of new DD instructions where they can. That is not so easy.

Thankfully Monzo have opened up an interesting new option for us - a deposit by fast payment!

We have started asking for a deposit, for new accounts, optionally, for some services (VoIP and L2TP). Just £10 paid by bank transfer as part of the order process. We see it instantly, and it provides the bank details for setting up the Direct Debit for on-going payment.

We have even set it up so that we will automatically send the money back in a few days if the order does not go through.

Whilst we face very little fraud, we have found some services, like VoIP, have had issues. Providing the service instantly, even in the middle of the night, means that false/fraudulent details do not show up for a couple of days, or much longer. Until now we have actually blocked some types of out-of-hours VoIP orders because of this, which is not ideal.

Taking payment by card would be an option, but that too is rather biased to the card holder, and does not allow us to validate bank details for Direct Debit. We have had cases of card fraud too.

The deposit is optional, but we are making it so that the order can go ahead instantly if you make a deposit. At the end of the day this is not about the £10, it is that a scammer will not want to send any money. If it is their account, those account details can go to the police if there is fraud. They are creating much more of a paper trail by sending money. Of course if they have compromised someone else's account they can send a deposit, but I am sure they have more interesting things they can send money towards than our services in such cases. I hope so.

This means we have opened up the VoIP ordering at any time of day if you pay a small deposit. Ongoing payments are then by Direct Debit, which give the customer a lot of control if we do anything wrong, but we are able to ensure we have the right bank details that match the deposit. It seems to me to be a good trade off - the trust/risk is biased to us for first £10 and then to customer ongoing by Direct Debit.

We have been running it for a few days, and in spite of it very clearly being optional, so far, every new customer has chosen to pay a deposit - which is really great news. Apart from one test we ran to ensure we do auto-refund, nobody has given up on an order after paying a deposit, either.

It is a very different approach to taking credit cards, which is so common these days, and I think it is working well. And it is all down to Monzo providing the instant feedback for us via a web hook for the incoming payment.

If someone does not want to pay a deposit, that is fine, but it means accounts staff checking the order during office hours, and adds a small delay. So it is a choice people can make if they want, either way.

I am really pleased that Monzo have meant this is now possible. It is a shame the major existing banks did not think it worth while providing this level of control and information to their customers really. Well done Monzo!

P.S. Sales pitch - if you are a business and need this type of integration, we know people that can help you (some A&A customers we work with).

3 comments:

  1. This sounds like an excellent idea to me. As a customer making an electronic payment I much prefer to do a small payment first to make sure all the details are correct, even when not requested. I will often pay £10 or £50 (depending on how much the final bill is expected to be) in advance, just so I can be sure I have all the details right. It's far too easy to transcribe numbers incorrectly, and whilst the modulus checks pick up most accidentally jumbled numbers, inevitably they miss 1 in 10. When the final bill is due I get independent confirmation from my supplier that they got the first payment, so I can make the final payment with confidence. (Sadly this technique can apparently trigger some fraud warnings, but I'm happy to contact my bank and confirm that it isn't.)

    What you talk about seems to be a rather neat notion, particularly if the transcription of bank details from received payment to new DD mandate is entirely automated. Of course, if you rely on someone copying them over then the possibility of human error creeps back in.

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