2020-06-23

Beyond credit cards - is this a way forward?

We all buy things on-line all the time, and use credit or debit cards to pay on web sites all of the time. As a company we have taken cards with orders in the past, but now most of our business is ongoing services paid by Direct Debit.

Recently we changed the main account to which customers can send payment (when not paying by Direct Debit) to Monzo Bank. The reason, as I explained in my blog post, was that we get instant web hooks for incoming fast payments. I suspect this may be possible with some other banks, perhaps with OpenBanking, and that is something we do want to investigate, but it works well with Monzo.

Apart from allowing incoming payments to instantly be assigned to customer accounts, allowing sales and accounts staff to see the money and ship goods, place orders, or remove restrictions on an account, we also introduced a new feature for deposits with orders.

The idea was to take money by bank transfer as part of an order. This helps avoid some fraudulent orders, and means we have money up front. It also means we have bank details to validate correct Direct Debit instructions.

This was rather experimental - we had no idea how customers would react. We know people are familiar with a credit or debit card with an order, but sending money by bank transfer is not something that is at all common. We made it totally optional, but obviously having had payment with order it means we can progress orders a lot more quickly. Sales staff can immediately ship goods without waiting for our accounts department to check credit or get a deposit.

Over time we have gradually added to more and more types of orders and for lower amounts, and even for existing customers if they do not have a direct debit set up or working. In some cases we only ask for £1 or £2 deposit even, in others it is the whole cost of equipment being supplied.

To my utter surprise it is hugely popular - we have now handled many tens of thousands of pounds in this way. I recall only one case of someone specifically declining to pay a deposit with order so far, and I am frankly gobsmacked, this is excellent!

As a merchant

As a merchant this is a lot easier than taking credit or debit cards.
  • No card processing fees.
  • No delay receiving payment.
  • No PCI DSS hassle (yes, obviously we comply with GDPR and have a privacy policy).
  • No risk of a chargeback - it is just like cash.
  • Allows us to validate Direct Debit details for on-going services, reducing mistakes and fraud.
  • No choosing which cards to take or not take as any UK bank can send faster payments.
  • No joke, scam, or fraudulent orders as they don't seem to want to send money up front.
  • No real minimum, though some banks seem to dislike smaller than £1 (card fees often make small purchases by card less cost effective).
Overall it is a stupidly good deal for us - we get payment just like cash but don't even have the hassle or cost of handling cash! We can automate a lot of things, unlike cash.

As a customer

As a customer, are there advantages? Are there disadvantages? As we say, for a start, we make it optional (except in one case where we do see fraud with a particular VoIP service), but people do love it, which is great news.
  • Faster order processing, we have the money so we can go ahead with the order, often automatically (so for VoIP, and L2TP these can be working in seconds any time of day or night, and for broadband the order for lines/circuits are even sent automatically).
  • The UK banking system's "Confirmation of Payee" process means that the customer knows they are paying us, by name, and so they know who has their money (very often unclear when paying by card).
  • If an order does not go ahead, or any other reason for refund, it can be instant, unlike (mostly) with card payments - though it does depend on us sending it back (which we do).
  • If we refund, that is final - unlike cases I am now seeing where a card chargeback is now being disputed by the merchant months later, and I don't know for sure if my chargeback is "safe" yet.
  • The lack of fees helps keep prices low.
  • No need for address match - if wanting to send to a friend you can, as you have paid, just like cash.
Of course there are some disadvantages. With a card, a chargeback is possible, and it is also possible with a credit card for some amounts to hold the card company liable for failure. Obviously this also only works if you have the money and don't need credit from a card.

I really think there are businesses that could operate entirely like this without the need to take credit or debit cards at all. For small companies, especially struggling to recover after COVID-19, this could be extremely useful.

Teething problems?

Obviously the process was not without some issues, but we have it quite slick now. Most issues are around people who simply cannot type a correct payment reference.
  • Monzo very quickly fixed a Confirmation of Payee issue with our company name, and are working on the missing ampersand at present.
  • We created a system to allocate a payment reference (account number on our system) without customer details yet, and ensure that did not then change later for future payments.
  • We created a system so that the ordering process can check for incoming payments on such an account number cleanly and get bank details for setting up Direct Debit.
  • We created a system to refund (by BACS at present) any deposit if the order does not complete. Hopefully in future we'll have a faster payment means to refund, and I can do it manually (as I have been).
  • We had to decide how much money to charge - if just a deposit for good will and Direct Debit details, or if paying the total up front. We fine tuned how much we ask in each case over some months depending on the type of service, the risk to us, the goods being supplied, etc.
  • We decided to make the up front payment whole pounds to try and avoid typing errors, and this has worked well - we are selling ongoing services so any balance of pence just ends up part of the first Direct Debit. This will obviously not be the case when just selling goods (which we plan to do also).
  • We discovered just how bad people are at typing a payment reference correctly - it is a real shame that the Confirmation of Payee system does not allow us to send a regex for the reference! However, when a payment is wrong, we can easily immediately return it with "Wrong reference". This worked well and for once customer they resent with the right reference, all during the order process!
  • The real time payments, and the payer name and bank details, also help allow us to easily tie up a payment with an order if a customer does make mistakes. We allow the customer to say carry on without deposit and flag that they had issues with the order. That has worked well for those few cases.
  • We have introduced a checksum system that makes it easier to ensure a wrong payment does not simply go to someone else's account (easy to spot, but more of a nuisance as we email that customer confirming payment). Sadly we do not yet have a means to instantly automatically return such payments, but one day we will I am sure.
  • Not really for new customer orders, but we have added a system to automatically email a statement to any existing customer paying - we also set a system to cancel any pending Direct Debits that are possible when applying the new payment. We even set the system to automatically remove restrictions on service automatically once payment arrives. Customers have used this to pay by bank transfer instead, and the system is totally automatic now!

Barcodes?

I have suggested before that we need barcodes for this, and someone has pointed to a draft RFC (here).

This is similar to what I proposed in 2017. If it actually becomes an RFC that may be a good start to people actually understanding them. We just need banking apps to start handling payto: URLs and things will be a lot simpler.

7 comments:

  1. I'd still look at taking cards. I think most people are more comfortable with a card payment than a bank transfer as it offers the customer more protection. And not all UK banks yet offer 24x7 sending of Faster Payments. Some only send FP funds during banking hours.

    And ... it sounds like the cruise company are disputing the large chargeback ?

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  2. I would be very careful with how you proceed

    the regulator would likely a dim view of some of the advantages you've listed for the merchant if anyone ever got into a serious dispute with you, especially with the brand new Payment Services Directive

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    1. I would be interested to know more about what regulations you think could apply, or even what regulator would apply. We are not a bank, or a payment services provider, and not even offering consumer credit. We are simply a business telling customer our bank details to pay us for goods and services we sell. It is hard to see which regulator could have any problem with that. So yes, I’d like to know more and we’ll check anyway.

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  3. That's interesting. I could see it being useful for paying suppliers I trust, and using cards for ones where the protections that cards give are actually useful. I'm a bit surprised that Amazon hasn't thought of doing it, because they would be an excellent candidate, but perhaps with their volume they can negotiate card fees that are extremely close to zero anyway.

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  4. It's a shame there's not a URI scheme for bank payments. There's one for Bitcoin which allows recipient, amount, and a reference to be supplied: https://en.bitcoin.it/wiki/BIP_0021

    If such a thing were to exist, I'd imagine it'd be possible to encode everything required into a QR code which could be scanned by a phone (opening a banking app). No messing around manually entering amounts, references, etc.

    It looks like there's a draft for a payto: URI scheme though:
    https://tools.ietf.org/id/draft-dold-payto-14.html

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    Replies
    1. Nice, I came up with similar in December 2017 (updated more recently): https://www.me.uk/kennard-draft-pay-url.txt but did not get as far as actually issuing as a draft

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  5. As an AAISP customer for well over 15 years I have faith if something wasn’t right you’d do the right thing to make it right. To be honest during my early ADSL install there was an issue and you joined the conference call with BT. However with most purchases I like the protection a credit card gives. For example a number of my theatre bookings have been cancelled and they want to give me a credit note whereas I can now use the credit card to get a proper refund. I’m not sure I’d have that right with a bank transfer.

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