Ways
to Pay
A report into Northern
Ireland consumers’ views
on making payments
Consumers’ views on making payments
Contents
Page
Foreword
2
Executive summary 5
About the Consumer Council 4
Methodology 8
Key Findings - NI Consumer Views and Use of Payment Methods
•
Cash
9
•
Cheque
11
•
Direct Debits
14
•
Credit Cards
17
•
Foreign Currency 20
•
New Technology
24
Future Changes to Payment Systems
31
Conclusion and Next Steps 34
Recommendations 37
Appendix 1 - Credit and Debit Card Processing Charges
39
Appendix 2 - Consumer Council Survey on Payments
41
April 2013
1
Consumers’ views on making payments
Foreword
Consumers’ views on making payments
The main aim of this study is to gain a better understanding of the reasons
why consumers use different payment methods. In turn, it sheds light on the
ways in which payments systems can be made more responsive to the needs
Making payments for goods and services is part of daily life. There are so many
options available to consumers that they now have to consider which is most
convenient, fastest, offers protection and perhaps which is cheapest when a
transaction takes place.
of consumers. Consequently, we have made a number of recommendations
for payments systems authorities and payments systems providers, to ensure
the needs of consumers are at the forefront of how these payment systems are
designed and delivered.
Consumers here use a range of payment methods, from cash and cheques
to direct debits, to specialised online payment services such as PayPal. In our
research we have looked at why consumers prefer certain methods of payment
and if they understand how much they are being charged to use them. We
have conducted quantitative research on the use of credit cards, awareness
of methods available and charges for purchasing items over the border and
abroad, usage of online payment systems and awareness of rights in relation to
direct debits.
The use of payments systems is slightly different for Northern Ireland (NI)
consumers compared to those in Great Britain (GB) due to the land border with
the Republic of Ireland. In the border areas, consumers may work on one side
of the border and live and shop on the other. They continually make decisions
Antoinette McKeown
Chief Executive
on paying for goods and services in different currencies to their best advantage.
In addition, a lot has happened in the payments landscape affecting consumers
in the last two years, including: the banning of excessive card surcharges;
new credit card rules to protect consumers; the declining use of cheques;
and the removal of the cheque guarantee card scheme. Other factors to take
in to account include: the introduction of contactless cards; Faster Payments
to reach accounts within one business day; and the RBS Group/Ulster Bank
payments crisis of summer 2012.
2
3
Consumers’ views on making payments
Consumers’ views on making payments
About the Consumer Council
Executive Summary
The General Consumer Council for Northern Ireland (the Consumer Council)
The aim of this research and report is to gain a better understanding of the
is an independent consumer organisation, working to bring about change to
reasons why consumers use different payment methods. The research has
benefit Northern Ireland consumers. Our aim is to ‘make the consumer voice
identified a number of themes highlighting the way in which consumers decide
heard and make it count’. We have a statutory remit to promote and safeguard
how to pay for goods and services. We have also identified a number of gaps in
the interests of consumers and have specific functions in relation to energy,
how payment services are offered and recommendations for improvement (a
water, transport and food.
full list of recommendations is on page 37).
In taking forward our broad statutory remit we are informed by and
representative of consumers in NI. We work to bring about change to benefit
consumers by making their voice heard and making it count. To represent
•
Payment Methods - Protection and Control
consumers in the best way we can, we listen to them and produce robust
Ensuring that payments are protected, alongside controlling when and
evidence to put their priorities at the heart of all we do.
how much is paid, are important elements affecting consumer choice and
Helping all consumers gain the skills and confidence to manage their money
satisfaction with a range of payment methods.
and make it work for them is a key focus for the Consumer Council. Making
Cash remains one of the most popular payment methods, particularly for
payments for goods and services is an essential part of daily life and it is
paying tradesmen and as a method to keep track of spending. However
vital that consumers have a range of convenient, efficient and protected
consumers are telling us that they are using credit cards, with one in six (16 per
ways to pay.
cent) using them for ‘better protection if something went wrong’.
Direct debits continue to pose problems for some consumers. There is a gap
in consumer knowledge with 37 per cent not knowing that they are entitled
to an immediate refund if an error is made. Consumers express concern that
the amount taken by direct debit can vary, as can the date it is taken. This can
lead to a lack of control with the outcome being unpaid bills or unexpected,
unauthorised overdraft fees. In more extreme cases, consumers reported
cancelling direct debits and decided to pay using more expensive methods,
simply to gain more control over their finances.
•
Cost of Making Payments
The cost of using different Payment Methods has proven to be a key motivator
for consumers choosing which method to use. Consumers have told us that
4
5
Consumers’ views on making payments
they are still being charged in some shops when using debit cards for small
purchases. Paying to withdraw cash at a cash machine is another common
problem consumers raise. When paying for items like car insurance consumers
also complained about the fees applicable when using a credit card or
spreading the cost of the bills by monthly direct debit.
Some progress has been made, such as the Government’s decision to ban
excessive card surcharges, and the introduction of new credit card rules that
prohibit lenders from making consumers pay off the cheapest debt on their
accounts first.
Foreign currency exchange is also an issue for many consumers, although
46 per cent say that convenience is the most important factor, rather than
price. Consumers are uncertain about using debit and credit cards abroad with
Consumers’ views on making payments
•
Acceptance of Payment Methods
As payment methods evolve and the use of older formats, such as cheques, is
in decline, consumers have pointed out that acceptance of traditional methods
has diminished.
The removal of the cheque guarantee scheme and the decline in the number of
retailers accepting cheques has had an impact on consumers. In addition,
few retailers in Northern Ireland have the technology available to accept
contactless cards.
The research also uncovers a number of areas where consumers show a lack
of motivation to change from payment methods they traditionally use, such as
cheques and cash, despite being offered better protection with other methods.
63 per cent saying they would not know how to find out what exchange rate
would apply.
•
Access to Payment Methods
Developments in new ways to pay have been heavily influenced by the use of
technology. While payment facilities such as contactless debit cards, online
banking systems and smartphone apps are suitable for some consumers, there
is also a segment of consumers being left behind through lack of access,
confidence or knowledge.
Accessing online banking has proved difficult for some consumers who say that
they have never been able to complete the registration process, while others do
not have the skills or the tools to use these services. Younger people are still the
most likely to make use of online banking using a smartphone app. We found
that 75 per cent of people aged 50-64 did not use online banking at all.
6
7
Consumers’ views on making payments
Methodology
Focus Groups
Consumers’ views on making payments
Key Findings NI Consumer Views and Use of
Payment Methods
Six group discussions were held with consumers in Armagh, Ballymoney,
Belfast, Cookstown, Derry/Londonderry and Fivemiletown with the use of
a topic guide, allowing consumers to speak freely on the subject of
Cash
payment methods.
Quantitative Research
The Consumer Council commissioned Millward Brown to conduct an omnibus
survey to measure consumer behaviour. More than 1000 adults aged 16 and
over from the general public took part in the survey.
The final sample was weighted to be representative of NI 16+ population in
terms of gender, age, social class and region. A list of the questions asked as
part of the survey is contained in Appendix 2.
Cash continues to be an extremely popular method of payment in NI. This
is supported by anecdotal evidence from banks operating here who report a
continued, strong demand for cash from cash machines and at many branches.
In July 2012, LINK, the UK Cash machine network, reported that despite new
payment innovations, access to cash still matters to people, particularly access
via the cash machine network. Their figures show no signs of consumers using
cash less. In fact their latest figures show that across the UK, 2011 was a record
year for cash withdrawals.
Many consumers put forward a number of reasons why cash is a useful or
an important payment method for them. These include being able to obtain
8
9
Consumers’ views on making payments
Consumers’ views on making payments
discounts for cash purchases and having more
n’t like
by cash. I do
I always pay
ey
use the mon
a
c
e
b
s
it
b
e
d
direct
ank at
ys be in the b
a
lw
a
t
o
n
t
h
mig
.
I get charged
d
n
a
e
m
ti
e
th
er
Derry consum
Cheques
control over their money if they actually have the
cash in their hands.
In contrast, consumers pointed to some
situations where cash is not ideal, namely:,
if paying by cash they will not have a bank
statement confirming a payment was made;
withdrawing large amounts of cash can be a
se
of one of tho
t
u
o
sh
a
c
t
e
I’ll not g
at
the shops th
in
s
e
in
h
c
a
cash m
charge you.
onsumer
Cookstown c
security concern; and their preference to use
other methods. Additionally many consumers are
clearly not happy with the thought of paying a
fee to withdraw cash from a cash machine.
Recommendation:
Banks and cash machine providers should continue to provide free-touse cash machines, especially in deprived areas across Northern Ireland.
Consumers in the focus groups clearly identified a range of scenarios where
cheques would be a preferred payment method. This ranged from giving
gifts, paying large bills and keeping track of finances. There was also a level of
confidence from consumers that people know how to use cheques and are
familiar with them.
In 2010, the Payments Council, the organisation responsible for overseeing UK
payments strategy took a decision to work towards a date in 2018 to abolish
cheques owing to a decline in usage. The Consumer Council worked with a
number of bodies, including the Payments Council to ask that cheques would
be available for as long as consumers needed them. Many consumers here still
use cheques on a regular basis to pay bills by post, pay a tradesman, make a
donation to charity or pay school fees. In particular older people and those who
are housebound often rely on cheques to manage their finances.
10
11
Consumers’ views on making payments
what
in touch with
p
e
e
k
u
o
y
k
I thin
using
... rather than
re
o
m
e
v
a
h
u
yo
you
ll the time if
a
rd
a
c
h
c
it
your sw
heques.
are writing c
mer
Armagh consu
ample,
ng oil, for ex
ti
a
e
h
e
k
li
l
il
Ab
year.
ably twice a
b
ro
p
y
u
b
e
w
l and I
be a large bil
It’s going to
e it
easier to tim
’s
it
d
n
fi
y
ll
genera
cheque.
and pay it by
onsumer
Ballymoney c
Consumers’ views on making payments
After further consideration, the Payments
leaves a possible gap for consumers who are not able to make a payment in
Council announced in July 2011 that cheques
person by cash or by debit card, such as housebound consumers or those with
will continue for as long as customers need
a disability.
them and the target for possible closure of the
cheque clearing in 2018 has been cancelled.
The Payments Council Board is now focusing
on security, efficiency and encouraging
innovation in all types of payments.
The Payments Council1 has reported that the
Recommendations:
Banks should continue to issue cheque books to consumers who use
or request them.
number of cheques cleared is continuing to
The Payments Council and financial institutions must continue to work
decline. On an annual basis, 12 per cent fewer
with the Consumer Council and consumers to ensure that existing and
cheques were cleared in 2011 (682 million) than
new payment methods meet consumers’ needs.
in 2010 (776 million). Despite this reduction, an
average of 2.7 million cheques were still cleared
every day in the last three months of 2011,
compared to 3 million over the same period
in 2010.
Previous research2 undertaken by the Consumer Council showed that 8 per
cent of consumers preferred to pay bills by cheque. This increased to 17 per
cent for people aged 65 and over.
The decline of cheques needs to be managed until there are other options in
place that consumers are able and willing to use. We have sought assurances
from banks operating in NI that they will continue to provide cheque books
to consumers who need them. We have also become aware that there is an
ever growing number of service providers who no longer accept cheques. This
1.
2.
12
Payments Council press release 19 March 2012
Omnibus survey conducted by Millward Brown Ulster for the Consumer Council, October 2009
13
Consumers’ views on making payments
Direct Debits
Consumers’ views on making payments
Figure 1: Awareness of direct debit guarantee
A direct debit is an instruction from a customer to his/her bank or building
society, authorising an organisation to collect varying amounts from his/
Awareness of direct debit guarantee
100%
her account. The customer must be given advance notice of the collection
amounts and dates. Direct debit is the only payment method with a money
7%
Not aware
Aware
33%
37%
67%
63%
93%
Changes to
amount, date or
frequency
Immediate
refund
Cancellation
80%
back guarantee, offering better protection than many other payment methods.
Almost two thirds (64 per cent) of consumers have direct debits set up to pay
bills. The use of direct debits is highest in the 35-64 age group at 75 per cent,
which drops, but still at over 1 in 2 people (57 per cent), in the 65+ age group.
All banks and building societies that accept instructions to pay direct debit have
60%
40%
20%
signed up to the Direct Debit guarantee scheme which provides protection
as detailed in the bullet points below. Overall there is a recognition amongst
consumers of the protection offered by the guarantee scheme as set out in
Figure 1. It is positive that 93 per cent of consumers are aware of their right to
0%
cancel their direct debit.
In discussions with consumers it is evident that they do
• If there are any changes to the amount, date or frequency of the direct debit
not feel informed in advance of the amount due changing
the bank must notify you in advance of your account being debited. If you
on bills that they had selected to pay by direct debit. This
ask your bank to collect a payment, confirmation of the amount and date
could be linked to how bills are presented to consumers, or
will be given to you at the time of the request (67 per cent of consumers are
the fact they do not feel motivated to open bills, whether
aware of this).
online or paper statements.
• If an error is made in the payment of your direct debit, you are entitled to
In the focus groups a number of consumers had changed
a full and immediate refund of the amount paid from your account. If you
from direct debits to standing orders simply because they
receive a refund you are not entitled to, you must pay it back when your
felt they would have more control over the amount paid
bank asks you to (63 per cent of consumers are aware of this).
from their account and the timing of the payment. As the
• You can cancel a direct debit at any time by simply contacting your bank.
direct debit guarantee scheme was designed to protect
Written confirmation may be required (93 per cent of consumers are aware
consumers, it is disappointing that some consumers have
of this).
felt the need to use payment schemes that offer less
protection and redress.
I changed a w
hole
pile of direct
debits
to standing o
rders, so
that if the co
mpany
wanted an ex
tra £40
the bank wo
uld have
to contact m
e to get it.
Armagh consu
mer
I use direct d
ebit
because it sa
ves a
certain perce
ntage when
paying for te
lephone and
electricity bil
ls. It saves
a bit more m
oney, that’s
about it.
Cookstown c
onsumer
14
15
Consumers’ views on making payments
In our report, the Price of Being Poor3 we note that some companies apply a
Consumers’ views on making payments
Credit Cards
charge or offer a discount to encourage customers to pay their bills by direct
debit. We want to encourage consumers to make the most of their money and
to feel that they can trust the schemes by knowing they can easily seek redress
if required.
Recommendations
The Payments Council, along with banks and organisations that accept
direct debits have a role to educate consumers about their rights and
responsibilities when using direct debits.
Utility suppliers, telecommunications companies and other billers
should keep under review the use of language and jargon on bills in
relation to payments. They should also check that they are providing
consumers paying by direct debit with appropriate notice of the value
The research found 58 per cent of respondents do not use a credit card. Those
of the balance due. Consumers should be allowed flexibility around the
under 25 are least likely to use a credit card (16 per cent), compared to more
collection date.4
than half (55 per cent) of those aged 35-49. Credit card use was also heavily
correlated with socio-economic group with ABC1s use of credit cards standing
at 56 per cent compared to 22 per cent in socio-economic group DE.
Figure 2: Reasons for using a credit card
Reasons for using a credit card
11%
4% 1%
No funds
9%
16%
Protection
Convenience
Online purchase
18%
Spread the cost
Other reason
None of these
3.
4.
16
A Consumer Council report highlighting how poorer people pay more for everyday essentials and recommendations
for change. June 2011
In line with EU legislation, (IME3) utility companies have been required to review how they produce billing for
consumers. Codes of practice will be published for public consultation during 2013. See consumer checklist
http://www.uregni.gov.uk/uploads/publications/EU_Consumer_Checklist_December_2012.pdf
41%
17
Consumers’ views on making payments
Consumers’ views on making payments
As Figure 2 demonstrates the most frequent reason given for using a credit card
was that it is more convenient than withdrawing cash or using a cheque
(42 per cent).
In 2010 the Government announced a range of new measures designed
A high proportion of consumers (18 per cent) use a credit card for online
to help consumers using credit cards. Previously, card providers were
purchases. Payment methods for online shopping will continue to be a key
able to charge borrowers different rates depending on the ‘type’ of
area of interest. The Consumer Council conducted research in 2012 to
debt such as cash withdrawals, balance transfers and purchases, and
assess purchasing behaviour and found that online shopping has continued
consumers paid them off with the cheapest debt first. Now consumers
to rise amongst Northern Ireland consumers. For example, the proportion of
must pay off the most expensive debts first, thus reducing the
consumers shopping online daily or weekly has risen from four per cent in 2007
outstanding balance more quickly.
5
to 13 per cent in 2011.
Lenders are also obliged to contact existing customers who only ever
Interestingly 16 per cent mainly used a credit card for ‘better protection if
make minimum repayment amounts, to make it clear this is the most
something went wrong’ . This was also mentioned in the focus groups.
expensive way of clearing debt. Now, the minimum repayment must
6
There is a clear split in views in relation to credit
credit
at paying by
th
y
sa
le
p
o
e
P
safest
sed to be the
card is suppo
oliday for this
h
a
k
o
o
b
u
o
way. Y
a long
12 months is
r,
a
e
y
t
x
e
n
e
tim
oes bust
t company g
a
th
if
d
n
a
e
got
tim
nless you’ve
u
g
in
th
o
n
e
you hav
rd security.
that credit ca
mer
Armagh consu
5.
6.
18
Credit Card Rules
cards. Many consumers are reluctant to use
always cover at least the interest, fees and charges, plus one per cent of
the outstanding balance.
them believing credit cards were too tempting
and that they could not manage the debt. Others
however use them on a regular basis and build
up rewards and discounts.
‘Canny Consumers. Are consumers standing up for their rights?’ The Consumer Council, August 2012
Credit cards can offer additional protection under Section 75 of the Consumer Credit Act. The law says that the
credit card provider is jointly liable with the business if something goes wrong (for example, faulty goods, nondelivery or if the retailer goes out of business). 19
Consumers’ views on making payments
Consumers’ views on making payments
Foreign Currency
Interestingly, as Figure 4 shows, the majority of consumers are likely to be
Exchanging Sterling for Euro and making purchases in Euros is an issue many
consumers raised during the focus groups. Consumers, especially in border
areas, focused on the availability, rates and charges for euro exchange.
motivated by convenience (46 per cent) followed by price (42 per cent) when
choosing where to exchange cash to other currencies. Those who chose to
exchange their cash at a Bureau de Change were most likely to be motivated by
price, whereas those using either a Post Office or bank were more likely to be
As Figure 3 demonstrates there is a range of service providers consumers use
motivated by convenience. This was also confirmed by participants in the
to exchange cash. Just over a third (35 per cent) would mostly exchange cash
focus groups.
for other currencies at the bank. Other popular providers were the Post Office
(20 per cent) and a Bureau de Change (13 per cent). Only one per cent of
consumers claimed they would prefer to exchange cash at the airport, which
may relate to the view that a less favourable rate is provided. Around one in
seven (14 per cent) claimed they never use foreign currency, rising to one in
Figure 4: Motivations for choice of foreign
currency provider
Motivations for choice of foreign currency provider
four (25 per cent) of those in socio-economic groups DE.
2%
10%
Time
Convenience
Figure 3: Where consumers most often exchange cash
Price
Where consumers most often exchange cash
Other
42%
40%
35%
30%
25%
46%
20%
15%
10%
5%
r
Tr
av
el
Re
ta
ile
Ba
nk
ag
en
At
t
th
e
ai
rp
or
t
O
Fr
nl
ie
in
nd
e
s/
fa
m
Ca
ily
sh
D
eb
m
it
ac
or
hi
Cr
ne
ed
i
D
tc
on
ar
’t
ds
us
e
fo
O
re
th
ig
er
n
cu
rre
nc
y
Bu
re
au
de
ch
an
ge
Po
st
O
ffi
ce
0%
Consumers in the focus groups also discussed the fact that often they were
only able to work out how much they have paid for currency exchange or
goods after the transaction. Many believed it was not fully transparent at the
time of making a decision to purchase, when it is crucial.
20
21
Consumers’ views on making payments
outh
TM in the s
I use the A
ss.
pure lazine
f
o
t
u
o
t
s
ju
wn
y Euros do
m
t
e
g
t
s
ju
I
’t think I am
there. I don
r it.
charged fo
er
wn consum
Fivemileto
Consumers’ views on making payments
Nearly four in ten consumers in our survey (36 per
NI were more likely to choose Euros. The evidence from the
cent) claimed that they either never shop abroad or
consumer panels suggests that generally consumers have no
in the Republic of Ireland, or that they would not use
idea how to go about the decision making process and what
a debit or credit card to do so. Of those who would
information they need to get the best deal.
pay by debit or credit card when shopping abroad or
in the Republic of Ireland, more than six in ten (63 per
cent) said they would not know how to find out what
They would a
sk me which
currency and
I would
always say Ste
rling. I
don’t know w
hy, should I
be saying Eu
ros maybe? I
don’t know. Fivemiletown
exchange rate would apply. This was most prevalent
consumer
amongst females, those aged under 35 and for those
you
t what rate
u
o
d
n
fi
u
o
get
Y
when you
,
s
rd
a
rw
e
got aft
ent.
your statem
r
n consume
Cookstow
in socio-economic groups DE.
Recommendations:
An even greater proportion, seven in ten (70 per cent),
As banks appear to be the organisations that the majority of consumers
said they would not know what fees would apply.
here use to exchange money, they should review how they display
their rates and fees. This should cover information on fees and charges
and terms and conditions, in all formats, including print, advertising
Of those who were aware how to find out the exchange rate, almost half (44
and online. Banks must agree on universal and simple terminology to
per cent) said they would check with their bank branch. Others would be
allow consumers to make comparisons easily.
equally likely to check online (20 per cent), look at their statement (19 per cent)
or even ask in the shop (16 per cent).
In 2011, Consumer Focus submitted a supercomplaint to the Office of Fair
Trading (OFT) regarding the lack of transparency and complex structure of
charges for use of credit and debit cards abroad. They considered this may
prevent consumers from making well-informed choices. Banks have been
asked to work towards the standardisation of a number of key terms used in
relation to foreign use charges, with agreed terminology to be implemented
across the industry.7
Of those who would ever pay by debit or credit card when shopping abroad,
or in the Republic of Ireland, just over four in ten (41 per cent) would opt to
Consumer and Advice agencies have a key role in encouraging
consumers to shop around for the best deals on foreign currency.
Banks providing merchant services in shops should give training
to sales staff in the shops so they can easily explain the process to
consumers, as there appears to be a reliance on retailers to help with
working out if the rate offered is competitive. A leaflet or point of sale
material for consumers could also be provided.
Banks must help consumers understand the decision making process
when deciding whether to opt for Euros or Sterling when making card
payments abroad.
pay in Sterling if asked in the shop to choose between Sterling or Euros, with
one in three (33 per cent) opting for Euros. The remainder had never been
asked or did not know which they would choose. Those living in the west of
7.
22
Travel Money and Card Use Abroad: Response to the Consumer Focus supercomplaint from the Office of Fair
Trading. December 2011
23
Consumers’ views on making payments
New Technology
The development of payment technology continues to move fast and will
Consumers’ views on making payments
redress, should anything go wrong. The reaction to the
concept was generally negative and aroused suspicion.
impact on the payments options available to consumers. There continues to
Contactless technology may also be integrated into
be innovations in card payments as well as online banking and applications.
mobile phones, meaning consumers here will be able to
Whilst some consumers have embraced new payment methods, the challenge
make payments by swiping their phone across a reader. Of
facing financial institutions is to ensure that the needs of all consumers are fully
course, much of the success will rely on acceptance and
considered in this continuing development.
retailers installing reading devices.
Contactless Cards
Online Banking
What if you lo
st it, sure
anybody cou
ld just swipe
it?
Armagh consu
mer
Contactless cards are a method of paying for everyday low value items, such as
coffee or newspapers, simply by tapping your credit or debit card on a reader
device. You don’t need to enter your PIN, therefore saving time in the queue.
Contactless cards are generally debit cards with an added chip, so do not look
different, apart from the addition of a small logo on the card.
Scheme providers each have their own system – PayPass for Mastercard and
PayWave for Visa. All contactless terminals will accept both types.
Some current account providers operating in NI have launched contactless
debit cards to consumers here. There appears to be limited success as few
retailers accept the cards as they have not invested in the reading devices.
This is in contrast to the use of smartcards for the public transport system in
NI run by Translink. Nearly half (45 per cent) of journeys on Metro services are
accessed by smartcard (which includes both cards purchased by passengers
and smartcards issued to those aged 60+ which permit free travel)8.
Alongside the low acceptance of contactless debit cards in NI, there appeared
to be extremely limited knowledge of the concept in the focus groups. There
was no awareness of consumer rights and responsibilities regarding security and
8.
24
The introduction of smartphones with internet browsers has opened up new
opportunities to make payments and do banking on the move. Many banks
have launched applications (apps) for consumers who bank online and have a
phone with an internet browser. The ‘app’ allows consumers to access the bank
website to check balances and make payments to individuals and companies.
Translink (Figures for journeys undertaken during April-October 2012)
25
Consumers’ views on making payments
Consumers’ views on making payments
One in three (33 per cent) NI consumers use
ork
g I go into w
Every mornin
g. nline bankin
o
to
n
o
g
lo
and
into
, you just get
it
b
a
h
l
a
re
a
It’s
ay.
ing it every d
the way of do
mer
Armagh consu
online banking or a smartphone app to check
their balances or to make payments. Those most
likely to use this were aged 25-49 and belonged to
socio-economic groups ABC1. Many consumers
in the focus groups stated that they checked their
balances using online banking regularly.
It is interesting to note the uptake of online banking dropped from 38 per cent
in Greater Belfast to 27 per cent in the west of NI, potentially signalling access
issues. There is also a significant reduction in uptake of online banking as the
In examining why respondents did not use online banking or a smartphone app:
• One in three (32 per cent) said they were afraid of fraud.
• A similar number (31 per cent) said they did not know how to how to use
these or could not get them set up easily.
• A further one in five (21 per cent) had no computer or smartphone.
Therefore it is important financial institutions recognise a significant proportion
of their customers will continue to rely on telephone banking and the branch
network.
age profile of the consumer increases (see figure 5). This demonstrates that 75
Often bank details will be requested from an individual in order to collect a
per cent of those aged 50- 64 and 89 per cent of those aged 65+ did not use
payment from that account or make a payment to it. The majority of survey
online banking.
respondents (83 per cent) were not prepared to give their bank account details
to someone who owed them money so they could pay it directly to their
account. Ten per cent said it would depend on who it was, leaving only seven
Figure 5: Age of consumers using online or smartphone
app banking
per cent who would give this information freely. Those aged over 65 and those
belonging to socio-economic groups DE were least likely to provide
this information.
Age of consumers using online or smartphone
app banking
Payments to a Mobile Phone Number
60%
50%
New technology is currently in development, which will allow consumers to
40%
make payments to individuals and companies by linking their current account
30%
to their mobile phone.
20%
Only 11 per cent of people would be prepared to give their mobile number
10%
to someone who owed them money (with the mobile number linked to their
0%
bank account). 85 per cent of people said they simply would not do this. These
16 - 24
25 - 34
35 - 49
50 - 64
65+
figures were similar for those who would be prepared to give someone their
bank account number and sort code to be paid directly (seven per cent) with
83 per cent saying they would not do this. It must be noted that these opinions
were also clearly reflected by focus group participants.
26
27
Consumers’ views on making payments
Case Study
The concept of a ‘digital wallet’ has been tried and tested during
Consumers’ views on making payments
Figure 7: Reasons for using an online payment
system or smartphone app to pay
Reasons for using an online payment system or
smartphone app to pay
2012 by phone company o2, which shows that there is space outside
the traditional banking arena for other service providers to enter the
80%
payments market. The new technology, which lets users send money
70%
using their mobile phone, could revolutionise the way payments
60%
are made.
50%
The app, which is downloaded to a smartphone, allows consumers to
transfer money, compare prices, track spending and shop. It can be
linked with any phone network or bank account and allows people to
transfer up to £500 to a UK mobile number, almost like sending a text
message. It is designed to supersede the use of plastic cards and cash.
69%
40%
26%
30%
16%
20%
10%
0%
3%
Security
Can get
a refund
3%
For
Control my
discounts spending
Other
There were mixed views from NI consumers about the use of technology to
make payments. For some, it was a quick and efficient way of doing things.
It is interesting that the majority of consumers
For others, the concept appears laden with opportunities for fraud and error. It
(69 per cent) use a method of payment where
is important to note that it may be natural for consumers to be uncertain and
they did not have to share account details with
lacking confidence in new technology until it is fully tested and commonplace.
the retailer. They felt not having to share account
or card details with the seller was more secure. A
Payment Apps
further one in four (26 per cent) use this service as
they know they can get their money back if there
App is an abbreviation for application. An app is a piece of software that runs on
is a problem. Only a very small number choose this
the Internet, on your computer, or on your phone or other electronic device. It
method in order to get shopping discounts
is usually quicker to use an app rather than go to a company website. Apps are
(three per cent).
I use an app
that’s pretty
good,
it’s just one c
lick and you
just
need to put y
our password
in.
Well, it’s kind
of risky but it
’s
handy. Altho
ugh you can
get a
refund on pu
rchases if yo
u
send
them back w
ithin seven d
ays.
Belfast consu
mer
designed to use less memory, run quicker and are specifically designed so that
users can do things like make payments more quickly.
One in four (24 per cent) use a smartphone app or an online payment system
Faster Payments
such as o2 wallet or PayPal to pay for goods. They were much more likely to be
The Faster Payments service allows customers to make electronic payments
used by younger consumers (those aged under 50) and ABC1s.
almost instantaneously, seven days a week, 24 hours a day. Payments are
typically made by phone or internet banking to transfer money between
accounts, to other people, pay bills, or make regular standing order payments.
The service was launched in May 2008.
28
29
Consumers’ views on making payments
Since the end of 2011, all sort codes able to receive Bacs payments can receive
Faster Payments (including credit card and utility companies). Faster Payments
are commonly used to pay bills, for one-off payments to small businesses or
Consumers’ views on making payments
Future Changes to
Payment Systems
tradesmen, and to make transfers to other bank accounts, savings accounts, or
other people.
Since 1 January 2012, in line with the Payment Service Regulations, all internet,
Banning of Excessive Card Surcharges
phone and standing order payments must now reach the recipient’s account
Consumers booking tickets, often for travel or entertainment online, found
the business day after they have been initiated by the payer. Types of payments
that they were charged extra when paying by debit or credit card. Sometimes
include those made to pay bills, one-off payments to friends and businesses
this payment was only added to the total cost after buyers had made their way
and regular payments, such as charity donations or life assurance. All standing
through up to eight web pages.
orders and one-off internet and phone banking payments exceed this
requirement, being processed end-to-end within two hours through the Faster
Payments service.
After investigation in 2011, the Office of Fair Trading (OFT) said that this was
unfair, because it makes it difficult for consumers to compare prices between
different companies. The Consumer Council has been working with the OFT
and private companies, mainly airlines, to make sure that payment information
Recommendations:
is upfront, transparent and reflective of the cost for consumers.
Banks should provide demonstrations to consumers who do not know
The Government has agreed to ban excessive surcharges for anyone using
how to set up or use online banking tools and those who express an
a debit or credit card. It says that the charge should only relate to the small
interest in the service. Some consumers attempt to set up an account,
cost to a retailer of processing a card payment. In effect it is bringing forward
fail during the process and are not contacted by the bank with
European proposals that will force companies to make these surcharges cost-
assistance. Banks should also review the instructions and materials
reflective. The law was not due to change until mid 2014, but the Government
given to consumers to set up the service.
has brought this forward to benefit consumers in the UK from April 2013. The
charges currently levied were identified as excessive in the focus groups.
Banks should review how they communicate the security and redress
features to consumers to encourage trust. Fear of fraud is a dominating
The cost of accepting card payments can vary widely between retailers, as
factor discouraging consumers from using online banking. Consumers
larger retailers often have greater negotiating power with the card networks
need to know that they are protected by the bank when using
(See Annex 1).
this service.
Recommendation:
Companies accepting payment by credit card must ensure that
charges are transparent, upfront and cost reflective. The OFT must
closely monitor and report on how retailers respond to the Payment
Surcharges Regulations 2012 to ensure consumers are protected.
30
31
Consumers’ views on making payments
Consumers’ views on making payments
Improving Current Account Switching
New Providers of Payments Systems
It is thought that less than four per cent of consumers in the UK have switched
In the last ten years, banks have started to provide new online payment systems
their bank accounts in the last year. One of the major reasons cited is that
and made progress by developing contactless debit cards and a system to make
consumers do not trust the banks to switch payments like direct debits and
a payment to someone simply by knowing their mobile phone number.
9
standing orders over correctly, with the risk of tipping the account into the red.
A number of new and less traditional payment providers have also entered
By September 2013 banks have agreed to provide an account switching
the market, such as online payment service providers (e.g PayPal, Amazon
guarantee, reduce the amount of time it takes to switch from around 18 days to
Payments, Google Wallet), mobile telephone ‘wallets’ and retail terminals (e.g
seven working days, and automatically switch incoming payments to the new
PayZone and PayPoint), accepting cash and some card payments for household
account. A redirection service will run for 13 months after the switching date to
bills. This is creating competition in the marketplace, from which we expect
catch any payments that go astray.
consumers should benefit.
The new process should help consumers who want to shop around for a
better product or service, knowing that the new bank will be able to transfer
payments quickly, accurately and provide help should any payment go astray. It
Pull Payment Systems
is anticipated more consumers will trust the new switching process and decide
The Payments Council is carrying out consumer research to find out if
to switch bank account, making the market more competitive.
consumers with lower incomes may benefit from a system of making payments
with more personal control.
A pull payment operates in the following way: the consumer agrees to pay
Recommendation:
using a pull approval system (the approval can be carried out on an online
Banks should carry out proactive communication and offer extra
banking service); the payee then initiates (pulls) the payment - rather than
personal help to reassure consumers that the switching process is safe
waiting for the consumer to generate (push) the payment. Payments are
and secure.
pre authorised by the consumer (individually or for all payments to that
organisation) via online banking.
The benefit for consumers is that they must authorise payments to be made to
companies rather than wait for a payment to be taken on an agreed direct
debit date.
9.
32
Review of the Personal Current Account Market, Office of Fair Trading, January 2013.
33
Consumers’ views on making payments
Consumers’ views on making payments
Conclusion and Next Steps
Consumers are still very confused about where they should go to exchange
This research on payments behaviour has identified real, everyday issues
when asked in a shop abroad and how much they pay in fees to withdraw
affecting consumers and has explored current consumer preferences. At a time
cash or make a payment abroad. Much more could be done to help educate
when consumers are looking for ways to save money because of significant
consumers on getting the best deal when making payments abroad.
foreign currency, whether they should opt for Euros or Sterling payments
increases in the cost of daily living, - in food, energy and transport costs consumers are looking for payment methods that are secure, offer protection
and that are free to use.
Accessibility
Having access to a range of different payment methods is important to
Protection and Control
consumers. New developments are to be welcomed especially if they are
convenient, fast and offer guaranteed protection. Some consumers are still not
Cash remains a popular method in NI to maintain control over spending habits
comfortable with new forms of technology and continue to rely on traditional
and budgeting. Consumers still have issues around the use of direct debits.
methods such as cash and cheques. With the decline in cheques there is a
This relates to the level of control they have when setting up suitable payment
worry that banks may decide to cease issuing cheque books to consumers
dates and knowledge of their rights in relation to getting a refund from their
who request them. The Consumer Council wants banks to guarantee that
account provider if things go wrong. Consumers want more flexibility in how
cheques will be available to consumers who need them until other payment
they manage payments. There appears to be a gap in payment solutions offered
methods have been tested by, and are accepted by, all consumers as a
that allow consumers to be really in control of pushing payments to payees,
replacement method.
which needs to be addressed.
Accessibility for consumers means that they have access to payment products
that are fair, communicated in plain English, priced transparently and are easy
Cost
to compare.
Consumers want convenient and fair payment methods that are free to use.
Consumers should not have to pay for paying. New legislation will mean
that consumers will pay fairer prices for making payments by debit card and
credit card online. However, there are still issues around using debit cards for
low value goods in shops and ‘pay to use’ cash machines which need to be
addressed as they are affecting consumers, particularly in deprived areas where
there are no other options.
34
Acceptance
The research uncovers a number of areas where consumers show a lack of
motivation to change from payment methods they traditionally use, such as
cheques and cash, despite being offered better protection with other methods.
Consumers want to have access to products that are widely accepted by
payees. Despite the growth of new technology solutions, there is a segment
35
Consumers’ views on making payments
Consumers’ views on making payments
equipment to use technology, or have an innate fear of fraud. There is more
Recommendations
work to be done to encourage consumers to try new concepts and to improve
This research report has identified a number of areas of work that the
the messaging that payment providers use to allay fears and encourage trust.
Consumer Council considers as priorities to take forward for improvement.
In response to the issues raised by consumers during the research, the
Below is the collective list of recommendations from the report.
of consumers who are being left behind as they either do not have the skills or
Consumer Council has made a number of recommendations listed in this
report. It is our intention to brief stakeholders, for example bodies responsible
for payments integrity, the financial regulators, banks and private companies
offering payment services in the areas where consumers want to see positive
changes. The Consumer Council is committed to working with Government,
industry and a wide range of companies to ensure the recommendations in this
report are achieved.
• Banks and cash machine providers should continue to provide free-to-use
cash machines, especially in deprived areas across Northern Ireland.
• Banks should continue to issue cheque books to consumers who use or
request them.
• The Payments Council and financial institutions must continue to work
with the Consumer Council and consumers to ensure that existing and new
payment methods meet consumers’ needs.
• The Payments Council, along with banks and organisations that accept
direct debits have a role to educate consumers about their rights and
responsibilities when using direct debits.
• Utility suppliers, telecommunications companies and other billers should
keep under review the use of language and jargon on bills in relation to
payments. They should also check that they are providing consumers paying
by direct debit with appropriate notice of the value of the balance due.
Consumers should be afforded flexibility around the collection date.10
• As banks appear to be the organisations that the majority of consumers here
use to exchange money, they should review how they display their rates
and fees. This should cover information on fees and charges and terms and
conditions, in all formats, including print, advertising and online. Banks must
agree on universal and simple terminology to allow consumers to make
comparisons easily.
10. In line with EU legislation, (IME3) utility companies have been required to review how they produce billing for
consumers. Codes of practice will be published for public consultation during 2013. See consumer checklist |
http://www.uregni.gov.uk/uploads/publications/EU_Consumer_Checklist_December_2012.pdf
36
37
Consumers’ views on making payments
• Consumer and Advice agencies have a key role in encouraging consumers
to shop around for the best deals on foreign currency.
• Banks providing merchant services in shops should give training to sales
staff in the shops so they can easily explain the process to consumers, as
there appears to be a reliance on retailers to help with working out if the rate
offered is competitive. A leaflet or point of sale material for consumers could
also be provided.
Consumers’ views on making payments
Appendix 1
Credit and debit card processing charges
The OFT’s report gives a good indication of travel providers’ average
variable costs.
• Banks must help consumers understand the decision making process
when deciding whether to opt for Euros or Sterling when making card
Charge Minimum Maximum Average
payments abroad.
Merchant service charges
Debit cards and prepay £0.01 £1.50 £0.30
Credit cards 0.12% 4.70% 1.80%
process and are not contacted by the bank with assistance. Banks should
Charge cards -
-
-
also review the instructions and materials given to consumers to set up
Other per-transaction fees
£0 £15 Applicable MSC
£20 £25 £20
£0 £ hundreds • Banks should provide demonstrations to consumers who do not know how
to set up or use online banking tools and those who express an interest in
the service. Some consumers attempt to set up an account, fail during the
the service.
• Banks should review how they communicate the security and redress
features to consumers to encourage trust. Fear of fraud is a dominating
factor discouraging consumers from using online banking. Consumers need
to know that they are protected by the bank when using this service.
• Companies accepting payment by credit card must ensure that charges are
transparent, upfront and cost reflective. The OFT must closely monitor and
Charge-backs Periodic (usually monthly) fees
Terminal rental (e.g chip- and-
pin,) per terminal per month
General service fees £0 for larger retailers
report on how retailers respond to the Payment Surcharges Regulations
2012 to ensure consumers are protected.
• Banks should carry out proactive communication and offer extra personal
help to reassure consumers that the switching process is safe and secure.
(Payment surcharges. Response to the Which? supercomplaint, OFT, July 2012)
It is important to note that this table does not capture certain sources of
variation in acquirers’ fees. Merchant service charges can be blended, that is,
offered at uniform rates across different card types.
High street retailers point out that they absorb the cost of accepting payments
by debit and credit card, by charging the same in shops to someone paying by
card as they do to cash-paying customers. However, card payments do involve
38
39
Consumers’ views on making payments
costs, in what is quite a complex process. The customer uses a card to pay for
a product or service. The retailer or business takes the card details and gives
Consumers’ views on making payments
Appendix 2
them to an acquirer. The acquirer is the bank which processes the payment on
the retailer’s behalf. The acquirer passes on the details to the customer’s bank
or building society, and passes the payment back to the retailer. This operation
is overseen by card schemes, such as Visa, Mastercard or Maestro.
Consumer Council Survey on Payments
Q.1a Do you ever use a credit card?
Yes No
Q.1b Which ONE of the following BEST describes why you would use your
credit card instead of another method of payment?
• If I didn’t have available funds/ to help tide me over until pay day
• To get better protection on my purchase if something went wrong
• It is more convenient than withdrawing cash or using a cheque
• I only use it for online transactions as I need to use a card
• So I can spread the cost over a longer period
• None of these / Other reason (specify.......)
Q.2a Do you have any direct debits set up to pay any of your bills?
Yes No
Q.2b Which, if any of the following are you aware of?
A. If there are any changes to the amount, date or frequency of your
Direct Debit the organisation should notify you (normally 10 working
days) in advance of your account being debited or as otherwise agreed.
40
Aware
Not aware
B. If an error is made you are entitled to an immediate refund from your bank
Aware
C. You can cancel a direct debit directly with your bank
Aware
Not aware
Not aware
41
Consumers’ views on making payments
Q.3a Where do you MOST often exchange cash for other currency?
• Bureau de change
• Post Office
• Bank
• Retailer (e.g Marks and Spencer, Tesco, Asda, Sainsburys)
• Travel agent
• At the airport
• Online (please specify where).......
• Friends/family
• Usually take out foreign currency from cash dispenser machine
• Usually just use my debit or credit card wherever I am visiting
• Other (specify)
• I don’t ever use foreign currency
Q3b Which of these BEST describes what motivates you most when choosing
how you exchange cash for other currencies?
• Time- how quickly I need to get the money
• Convenience- how easy it is for me to reach the supplier
• Price- I go where I can get the best price
• Other (specify)
Consumers’ views on making payments
Q.3c If you pay by debit or credit card in a shop abroad or in the Republic of
Ireland, do you know how to find out what exchange rate would apply?
• Yes
• No
• Never shop abroad or in Republic of Ireland
• Would not use debit or credit card abroad or in Republic of Ireland
Q.3d And would you know what fees would apply if you were paying by debit
or credit card in a different currency?
Yes
No
Q.3e How would you find out what exchange rate would apply?
• I would check my card provider’s exchange rate online
• I would check with my bank branch
• I would ask in the shop
• I would look at my statement
• Other (please specify).....
Q.3f And how do you know what fees are applicable if you pay by credit and
debit card for goods in another currency?
• I have read the terms and conditions provided by my bank and know
what the fees are
• I find out what I have been charged each time I make a transaction or
withdraw cash at an ATM as I check my statements after
42
• Other (specify)
43
Consumers’ views on making payments
Consumers’ views on making payments
Q.3g When you pay by debit or credit card in a shop abroad or in the
Republic of Ireland and are asked if you want to pay in Sterling or Euro,
account so that instead of giving someone who owed you money your
which currency do you generally choose?
bank account and sort code you could give them your telephone
number so they could pay you directly, would you do this?
• Sterling
• Euros
• Have never been asked
• Don’t know/don’t remember
No It depends (please specify)
as O2 wallet or PayPal to pay for goods?
or make payments?
Yes Yes
Q.4e Do you ever use a Smart phone App or an online payment system such
Q.4a Do you use online banking or a smartphone app to check your balance
Q.4d And what if your mobile telephone number was linked to your bank
No
Q.4b Why do you not use online banking or a smartphone app?
• No computer or smartphone
• Fear of fraud
• Don’t know how to use/couldn’t get it set up easily
• Other (specify)
• Don’t know
Yes
No
Q.4f Why do you use this method?
• More secure, I don’t need to share card or bank details with retailer
• I know I will get my money back of I have a problem
• Use it to get discounts, cheaper than paying in cash
• I can set a defined budget and be in more control of my money
• Other (specify)
Q.4c If someone owed you money would you give them your bank account
and sort code number so they could pay you directly?
44
Yes No
It depends (please specify)
45
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Tele/Textphone: 028 9067 2488
Fax: 028 9065 7701
Email: [email protected]
[email protected]
Website: www.consumercouncil.org.uk
Consumer Council Northern Ireland
ConsumerCouncil