Terry Jones, CEO, SmartDebit

The financial services industry has been significantly affected by the digital age. New technologies and the shift towards the cloud have improved overall efficiencies and already enable companies to operate on a scale that would otherwise be unattainable.  The upcoming revised Payments Service Directive (PSD2) will again disrupt the current rules of engagement, allowing the technology sector, especially fintech startups, and challenger banks to take advantage of an area that is, at the moment, predominantly ruled by the major banks. It is no secret that the financial services industry must keep innovating and embracing new technology to avoid falling behind, as consumers increasingly indicate how they will engage with, and buy from, chosen suppliers.

Terry Jones

Of course, it’s not only financial services that need to be smart with new technologies. A recent study by The Confederation of British Industry (CBI) revealed that UK companies alone could make £100 billion “in extra economic growth” by investing in technology. Although the UK has a strong technology industry, the report claims that UK companies are unfortunately lagging behind in the adoption of technology to improve levels of productivity. By increasing productivity and efficiency, companies have the potential to run operations with more economies of scale, maximising turnover, and therefore increasing options around remuneration and benefits packages – ultimately giving employees a higher standard of living.

‘SMEs owed £44.6 billion in late payments’

A critical area in which technology can make a significant impact is helping businesses reduce late payments. Such delays can seriously affect revenue streams, and therefore entire operations. Earlier this year, Zurich’s SME Risk Index Report revealed that £44.6 billion in late payments is owed to SMEs, while Bacs (the organisation behind Direct Debit) claimed that 39% out of all 1.7 million SMEs in the UK, spend up to four hours a week chasing payments. This is an area where automation and services like Direct Debit can vastly improve the process, especially for those businesses collecting frequent recurring payments from customers or clients.

Interestingly, British consumers actually prefer using Direct Debit. It is one of the most popular ways for households to pay their regular bills, with over 90% of people with bank accounts having at least one Direct Debit.  However, surprisingly, there are plenty of UK businesses, particularly smaller ones, that haven’t yet taken advantage of this method of payment collection. This could be because a license (a Service User Number) from abank is necessary to be able to process Direct Debits.It could also just be for the simple reason that the organisation mistakenly believes the process isn’t within their reach.

Yet Direct Debit is a great example of how automation improvements have drastically transformed a financial service offering – payment collections are as smooth as possible; minimising errors, keeping customers informed and streamlining accounts reconciliation.  The financial damage regarding missed Direct Debit payments can, however, also seriously affect a company’s revenue streamsand negatively impact customer relations. This is exactly why it is important that smaller businesses review the opportunity to createDirect Debit facilities.  Concerns can often be addressed by a reputable third-party payment processing service, and those organisations are also able to act as the interface between the biller and the customer’s bank if additional support is needed.

Too much room for user error

Maintaining a positive cash flow is vital for businesses, but just as important is recognising where it is possible to reduce repetitive tasks which could be automated, and simply overseen instead.  Paper processes create too much room for usererror and make auditing and compliance reports time-consuming and complicated.  Automation benefits around Direct Debit can be identified in many areas, and are often more straightforward to implement than perhaps is realised.  Companies can manage, add or remove payers, search customer records in case of a query, amend details, edit amounts and view reports- all from a central dashboard. A further advantage is that should a payment collection fail, you will be notified immediately.

Reporting is now of paramount importance to any business due to increasing regulations and controls in the financial services sector.  There is no denying that Direct Debit can be complex and tiresome for businesses. There are rules and guidelines set by Bacs that need to be adhered to and there is also the Bacs processing calendar that needs to be followed, but these are all manageable with intelligent software.

In addition, when outsourcing any processes that involve people’s personal data and money, strict compliance to data protection regulation must be followed. With the incoming GDPR regulationcoming into force in May 2018, additional measures will need to be in place and this is creating concern in the industry, as business leaders will need to understand exactly what is being asked of them.

Fake news

As data protection increases and consumers become even more savvy abouttheir rights, companies will need to do more to remain compliant, and all associated processes will need to become integral to the business.  Compliance should not therefore just be viewed as a separate business department that oversees systems and demands changes.  Fake news is creating fear and panic, and companies need to either take more responsibility to self-educate or identify solid partners that they can trust to guide them through the maze.  This also brings opportunities, of course – in terms of business advantage.If small companies can learn quickly or partner with the right suppliers, they can move ahead of the bigger, but less agile, suppliers.

Innovation has to happen – it can’t be in isolation of the ongoing business either.  Either buy-in the services that you need, or learn to develop them within the business. Either way, make progress, because no-one else is standing still.