Direct Debits and Membership Recruitment, Value and Retention
Direct Debits and membership go hand-in-hand!
As well as working to create value for members, common priorities for membership organisations can include:
– Increasing member recruitment,
– Maximizing the value of members, and
– Ensuring a high member retention rate.
Various strategies can be adopted to positively influence these priorities, including the optimisation of member payments.
What payment options do you offer?
Typical payment methods used by organisations collecting subscriptions include Direct Debit and one-off or recurring card payments (also known as Continuous Payment Authorities). Collecting income via cash, cheque or standing order is less common these days. This is because the organisation is not in control. Instead it is reliant on the member sending the right value, on the right date with a meaningful reference. Direct Debit and card payments remain preferred methods, so let’s look at how they work:
Definitions
Direct Debit
A Direct Debit is an instruction from a payer (a consumer or business) to their bank. It authorises an organisation to collect varying amounts directly from their account (as long as they have been given advance notice of the collection amount and dates). It is a secure electronic payment method regulated by Bacs, who are part of Pay.UK. The Direct Debit is set-up using the sortcode and account number. The payer can clearly see the Direct Debit listed on their bank account and they are protected by the Direct Debit Guarantee. For organisations collecting regular or occasional payments from their payers, Direct Debit is the simplest way to collect funds. It can also be the cheapest! The organisation is in control and initiates the transaction. As a bulk payment method, Direct Debits can save time and ensure cleared funds are received into the organisations bank account on a known date.
Recurring card payments
With recurring card payments, authorisation is given to the organisation to collect funds (rather than to the bank). They are set-up using card details (rather than account details). From the payers’ point of view, it is not always easy to spot recurring card payments on their bank account and they do not have the same protection as with the Direct Debit Guarantee. For the collecting organisation, the cost of processing these payments can be higher. In addition, because debit and credit cards can expire or be cancelled (e.g. if lost or stolen), there is a greater chance of failures than with Direct Debits.
Given the benefits offered by Direct Debit, a successful Direct Debit strategy can help leverage key membership priorities. Let’s look at how.
Direct Debit as a tool to increase member recruitment
A smooth, easy sign-up process helps encourage new members to join. It can also create a positive impression of the organisation. Whatever the sign-up route offered, Direct Debit can be integrated as the payment method. This can open-up different ways of enabling new members to join. For example – if the organisation wants to enable new members to join via the internet or an app, payment by cash or standing order isn’t the best option. In contrast, the Direct Debit Instruction can be collected online as part of the sign-up journey. This means that members can join at a time that suits them in the way that resonates with their expectations about a modern organisation. And if the screens are mobile optimised, they can allow sign-up via a smartphone – thereby enabling wider reach.
Using Direct Debit an organisation can offer incentives; introduce different membership ‘types’ e.g. Full, Student etc; offer different membership collection cycles, e.g. annual / quarterly / monthly etc and allow different payment dates. This can make the membership more accessible and attractive.
Utilising Direct Debit as a payment option can add credibility and reassure potential members. Most individuals and organisations are familiar with paying by Direct Debit. Bacs was first established in 1968 and as a result, most UK adults have knowledge of it (and have often been paid a salary or benefits via ‘Bacs’). It’s a known and trusted approach. Nine out of ten UK consumers will have at least one Direct Debit set-up and typically, most will have many more. Many claim to prefer using Direct Debits, especially for regular payments. We see this preference reflected in the volume of Direct Debit payments made.
Direct Debit Volumes
In 2023 there were 4.8 billion Direct Debits in the UK. Of these 572 million were made for subscriptions. This includes 49 million for political/trade union membership, 65 million for gym/health club subscriptions and 17 million for cultural/historical membership. With Direct Debit, members can feel reassured that the organisation is a trusted, reliable partner and can have confidence in the payment management of their membership.
Direct Debit as a tool to maximise the value of members
A Direct Debit payment strategy can help ensure the highest possible value is obtained from members during their membership lifetime:
Helps with preventing / dealing with unpaid items
- Reduces failures: As a bank-to-bank payment method, failure rates are typically much lower than with other payment methods such as cards. This is because debit and credit cards (unlike bank accounts) can expire or be cancelled because they have been lost or stolen.
- Feedback on Failures: It is easier to reconcile failed payments. Using the ARUDD reports (Advice of Returned Unpaid Direct Debits) the organisation can gain insight into the reason for failure and the best follow up action to take. As a result, there is less time spent on credit control.
- Allows for re-presentation of failed transactions: With Direct Debits there is a concept of implied consent. Even if a transaction has failed – unless the underlying Direct Debit Instruction has been cancelled – it can be represented. This means that a higher proportion of collections could ultimately be successful.
Helps with admin and cost:
- Feedback on changes: The ADDACS reports (Advice of Direct Debit Cancellation and Amendments) will update organisations if a payer cancels their Direct Debit. This means the database can be kept clean and up to date – ensuring a higher success rate of collections.
- Reduces the admin workload: As a bulk payment method, the administrative tasks for the membership and finance teams can be streamlined. This can save the organisation staff time (and therefore money).
- Flexibility: Direct Debit enables the organisation to make changes to the amount and date of collection as required. This could be due to an inflationary increase to membership rates, for example, or because the member has used additional services. In either example the collected amount can be amended as required.
- Automatic Renewal: The Direct Debit allows for automatic renewals for members. They don’t need to take an action to re-join or make payment.
- Profitability: The cost per transaction will vary across organisations and sponsoring banks. Typically however, Direct Debit can be cheaper per transaction (pence) than other payment methods e.g. credit cards (pounds). Also, it provides predictable income with cleared funds on a known date (allowing better budgeting and planning).
Direct Debit as a tool to maximise member retention
Collecting membership fees via Direct Debit typically ensures a higher member retention rate versus other payment options:
- Remains Active: Direct Debits, if used, will remain active for as long as necessary – unless cancelled. This means that the membership can continue unhindered unless actively cancelled.
- Automatic renewals: The organisation is in control and renewals can be scheduled in advance of the membership expiration date. This proactive approach reduces the likelihood of memberships unintentionally lapsing due to oversight or forgetfulness
- Preferred approach: People like paying by direct debit! It’s convenient and stress-free. Because the organisation will take payments when due, the payer doesn’t have to remember to take an action. As a result, there is less chance of defaults, late payment charges or loss of access to services. This means happier and more loyal members who are less likely to cancel.
- Targeted Campaigns: Early notification of cancellations via Bacs reports (which isn’t available with other payment methods), means the organisation can quickly take action. If a member cancels, the organisation can approach them with incentives to remain or to re-sign-up. If a member has cancelled in error or changes their mind, the organisation can usually reinstate the Direct Debit (within 2 months).
Looking to the future
A good payment solution can positively impact the overall member journey and experience. In turn this can increase loyalty and retention. So, here are 5 ‘top tips’ for consideration:
- If your organisation doesn’t include Direct Debit as a payment option, introduce it! There are numerous benefits for both the Payer and for the collecting organisation.
- If you have not yet made the move to AUDDIS (the Automated Direct Debit Instruction Service) – make the change. AUDDIS is a business to bank messaging services that enables you to communicate about Direct Debit Instructions (DDI) without having to post the paper DDI to the bank. It is quicker to set up, removes delays and avoids postage costs.
- Consider Paperless Direct Debit Sign-ups. Once live on AUDDIS, you can introduce paperless sign-up methods (e.g. telephone or internet). These can enable bank checks to be undertaken in real time, at point of capture, helping to highlight errors for quick and efficient resolution.
- Consider an Audit to review and streamline your processes. These can help highlight areas to improve, and check for compliance with scheme rules.
- Invest in training for staff. It’s a big responsibility to collect an organisations income and one which can directly impact a company’s image. Help the team get it right every time and feel more confident with their work.
Contact Us with Questions
An efficient and streamlined Direct Debit collection process can help increase new member recruitment, maximise member value and help ensure the highest possible member retention. It can create organisational credibility and improve trust. If you want to know more – contact us today.
The team at Movimo are here to help!