11 October 2016
Request to Pay
The way we work is changing, as more and more people go self-employed or sign zero hours contracts.
The number of people on zero hours contracts has risen 20% to 903,000, or about 3% of all workers, over the past year, according to government figures. In the three months to June, the number of self-employed workers in the UK also shot up by 257,000, pushing the official total to 4.79 million.
The traditional earnings pattern of employees receiving the same amount on the same day every month has started to look outdated as a result. And the payments industry needs to change to reflect this.
That’s why the Payments Systems Regulator has asked VocaLink to look into the delivery options for a flexible new payments system called ‘Request to Pay’. Designed to provide a flexible way for payments to be made and received, such a payments system could include warning consumers and businesses about upcoming bills and allowing them to change payment dates to suit their needs.
Chris Dunne, market development and industry relations director at VocaLink, said: “The increase in small businesses and part-time employment has led to a decline in people receiving regular salaries or incomes, and there is a pressing case for the payments industry to address these changes.
"The ‘Request to Pay’ system could revolutionise payments for consumers, helping those on multiple and variable incomes to manage cash flow and supporting people with any payments challenges they face."
More than a quarter of Britons have missed a regular payment at some point, according to VocaLink’s research. Its survey of 2,000 UK consumers also reveals that many of those who have missed payments have faced big charges as a result. Almost half of those who have missed a payment in the past 12 months say they were forced to pay penalties of up to £50.
In many instances, payments are not made on time due to financial difficulties. The research shows that 53% of those who have missed payments in the past did so due to insufficient funds or irregular pay. This is a common problem for small businesses, which often struggle to manage their cash flow to tie in with their commitments, as well as consumers.
Entrepreneur Colleen Wong, who launched wearable mobile tracker company Techsixtyfour in April this year, said: "Cashflow is one of the hardest things to manage when you are setting up a business.
"While I have to pay many of my suppliers immediately, buyers of my product – the Gator watch, which is designed to help parents stay connected to their kids – often want a lot longer to pay, in some cases up to 120 days, and that can make things rather tricky."
A lack of available funds is not the only reason businesses and individuals fail to pay bills on time, however. About a third of those who admitted having missed payments in the past did so for the simple reason that they forgot they needed to be paid. A ‘Request to Pay’ alert system could help to put a stop to these avoidable errors.
“Receiving a mobile message saying your gas bill is due will also help to prevent people forgetting about payment dates and being hit with penalty charges as a result,” Dunne said.
‘Request to Pay’: a payments revolution
Introducing a revolutionary new payments system such as ‘Request to Pay’ takes time.
“It is likely to take two years to get the system up and running industry wide,” Dunne said. “We are aiming for ‘Request to Pay’ to become one of a selection of payment methods available to businesses and consumers by 2018.”
However, once it is fully operational, the system will make life easier for billers and customers alike.
Benefits for billers
The speed and convenience of the ‘Request to Pay’ system will help businesses get paid quicker and save time and money spent chasing late payments.
Dunne said: “In the future, when businesses send a payment request via the system, their clients will be able to simply click on a button to send the money via faster payments. There will be no more waiting for payments to be cleared.”
This could have a big impact on cash flow, especially for small businesses that currently rely on sending out bills and waiting for people to pay. Mike Cherry, National Chairman at Federation of Small Businesses, said: “A key priority for small businesses when it comes to payments technology is addressing poor payment practice across supply chains – and late payment in particular.
“We welcome all solutions which seek to address how a small business can be better empowered by new payments technology.”
Sending out mobile messages is also a lot cheaper than sending out paper bills and chasing late payments via letters, calls or emails.
“We expect businesses to see payment rates improve and costs fall,” Dunne said.
And while giving people the option to delay bill payments may mean companies waiting a bit longer for their money, they will at least know when it is coming, which is often not the case at the moment.
“We have learned that some businesses find customers who are unable to pay the full amount are taking it upon themselves to just pay 50% of the amount outstanding,” Dunne added.
“But this is a pain for both customers, who are suffering with stress and may face penalties as a result of the incomplete payments, and businesses that have to spend money chasing the outstanding amount and do not know when it will arrive.
“With ‘Request to Pay’, it should simply be a matter of customers hitting a button saying they would prefer to pay it in two weeks time, or in two instalments.”
Benefits for customers
With ‘Request to Pay’, both businesses and individuals will benefit from greater control of the money going out of their accounts. Marcus Kirby, founder of London-based The Future Mapping Company, can already see how the system will benefit his business.
"If, for example, you have a big wholesale order that you know will be paid within 30 or 60 days, it would be useful to be able to time a big bill payment to leave your account after the money has come in,” he said. “Being able to decide exactly when and how much money leaves your account can only be a good thing."
Clearly, cash-strapped companies and consumers will not be able to put paying their bills off indefinitely. But a couple of weeks or a month of breathing space could make all the difference.
“The relationship between the biller and the customer will determine how long you can delay a payment,” Dunne said. “The deadline might, for example, be set at two weeks or a month.”
Allowing people to delay payments is not a completely new concept. Some companies already offer their customers a certain amount of flexibility regarding when they pay their bills.
“British Gas already allows its customers to amend their direct debits when they cannot afford to pay their bills, but there is quite a lot of admin required to organise this,” Dunne said.
‘Request to Pay’ will make it cheaper and easier for businesses to offer this option via a system that is fast, secure and simple to use.
“People do not want 100 different apps on their phones, so we plan to keep things simple by delivering ‘Request to Pay’ through people’s banking apps,” Dunne said. “At the end of the day, it’s all about giving people more control.”