Since its launch over half a century ago, Bacs Direct Debit has certainly become an embedded, hassle free, frictionless and pre-eminent way of making recurring payments.
However, the UK’s pre-eminent recurring payment solution is facing its greatest challenge. Will Direct Debits compete, coexist, complement or converge with Request to Pay and Variable Recurring Payments?
As the new recurring payment kids on the block continue to grab the limelight let’s take a quick look at how Bacs Direct Debit (and Direct Credit) works and how it all began.
How it works….
Here’s a simple and concise explanation of Bacs Direct Credit and Direct Debit from top pilot Captain Roger Over and his employer International Airlines
In this video you’ll hear the original reason for the (in)famous Three Day Clearing Cycle and, perhaps, the explanation will lead you to question the continuing need for such a cycle!
And how it all began…..
Alastair Hanton was the inventor of Direct Debit, a founder of National Girobank, and a tireless campaigner for causes ranging from sustainable transport to Christian Aid.
It was in 1964, as an executive of Unilever, that Hanton came up with a solution to the problem of collecting variable payments from thousands of ice-cream sellers – by obtaining authorisation to retrieve the money direct from their bank accounts rather than waiting for cheques or relying on standing orders.
In this video recorded in 2014 Alastair Hanton says that he had had ‘many meetings with stuffy bankers’ over his idea for taking variable payments from bank accounts, but he wore them down.
The high-street banks were reluctant to cooperate with what they regarded as an interference in long-established processes. “There was a battle,” Hanton recalled. “I had many meetings with stuffy bankers but gradually, by persistence, I wore them down” – and Direct Debits came into general use in 1968 (or, perhaps, 1970).
It was all because of ice cream!
The original use case shared in the video by Alastair still rings true.
Unilever wanted to collect money from thousands of small retailers who were selling ice cream and thought that they could save costs, improve the collection of monies owing and make everything more convenient if they could be authorised to collect money direct from those that owed them money.
50 Years on
50 years on a Direct Debit has certainly become the embedded, hassle free, frictionless and pre-eminent way of making recurring payments.
It was my privilege to lead Bacs as its CEO for over a decade – a time in which Direct Debit volumes grew from circa 2 billion to just over 4 billion transactions per annum.
What did Alastair invent?
A trusted brand
A trusted brand, which has become synonymous with ensuring bills are paid reliably and without fuss, it is perhaps apt that the milestone is marked in a typically understated way, reflecting Direct Debit’s role in quietly moving £1.3 trillion behind the scenes, each year.
A quiet revolution
With Direct Debit part and parcel of everyday life, it’s easy to forget that when it was launched in 1970 – a year that saw the first music festival held at Glastonbury – it represented a quiet revolution of its own. Put simply, the world of bill payments was changing.
Today, Direct Debit – which is now owned and run by UK retail payments authority, Pay.UK – is relied on by thousands of service users to reliably collect funds, and has a half-century of continued year-on-year growth.
Payments without fuss
Part of the growth in Direct Debits, inevitably, is down to the many more bills we pay today.
Bacs: 6.5 billion transactions a year … and counting
In the 1970s, regular payments were limited to mortgage or rent, and electricity or gas. Nowadays, we have mobile phone bills, broadband bundles, gaming subscriptions, in-app payments, and half a dozen different types of insurance; we spread the cost of major purchases from holidays to cars, and more mundane ones such as our TV licence or Vehicle Excise Duty, and settle dual fuel, water, and council bills without ever having to leave the house.
Thank you Alastair
My time as Bacs’ CEO represents a very significant part of my career, I am proud to have played my part in the success of Direct Debit – all thanks to Alastair having many meetings with stuffy bankers and gradually, by persistence, wearing them down!
Thank you Alastair.
We believe that it’s time for a debate on the future of Bacs Direct Debit:
- Have Direct Debits had their day?
- What should Direct Debit 3.0 look like?
- Will Direct Debits be inside or outside of a New Payments Architecture wrapper?
- Will Variable Recurring Payments team up with Request to Pay and ultimately have Direct Debits for breakfast?
- Will Request to Pay, Variable Recurring Payments and Direct Debits compete, coexist, complement or converge?
- Will Direct Debit 3.0 be a sandwich made out of Direct Debits with a Variable Recurring Payments and Request to Pay filling?
To be part of the debate visit: www.threepointzero.digital