Payment innovation driving public sector efficiencies

What a difference a couple of decades make. 20 years ago cheque use was at its peak with 11 million cheques written each day. Whereas, only 14 months ago the Payments Council announced plans to consider setting an agreed end date for cheque clearing, given that cheques are in a state of permanent decline.    

Similarly two decades ago the prospect of internet banking, or personal and business customers being able to make near immediate payments online and via telephone would have been unimaginable. However, since the launch of the Faster Payments Service in May 2008, over 800 million Faster Payments have been made, and in the first half of 2010 more than 24 million adults used internet banking for managing their finances.    

In a world where we are all looking for efficiencies, in both time and cost savings, technology advances have helped to transform the way in which we all make payments. Our old habits have had to change in order for us to make the most of the new convenient online services on offer, and the public sector, like us all, has striven to take full advantage.
 
New technology, new habits?

Over the last decade (1999 to 2009), the number of payments that were previously made by cheque or cash has fallen by 54 and 16 per cent respectively. Many of these payments have migrated to plastic card payments or to an automated payment method, such as a Direct Debit and Bacs Direct Credit.  

The rise in popularity of online banking has played a role in transforming the way people in the UK pay their bills and manage their finances. 24 hour online access means many are able not only to make payments using their cards or their online banking accounts, but also to set up regular payments online.    

Public sector organisations have had to react to these changes by adapting the payment facilities they are able to provide and the payment options they use.    

When looking at the statistics over the last eight years, the changes are marked. In 2009, 4.3 per cent of council tax payments were made using cheques compared to 13 per cent in 2000. In contrast, one-off internet or telephone banking payments have become increasingly popular with 5.6 million council tax payments made this way in 2009. This compares to 0.66 million payments in 2000. Automated payments like direct debits or standing orders now account for the vast majority of council tax payments, at 75 per cent of the total in 2009.   

In addition to council tax, local authorities are increasingly offering the opportunity for residents to pay for parking permits, housing and commercial rent and business rates over their secure websites. Other public services including vehicle and TV licensing now also offer online payment facilities to meet rising demand. Most of these are enabled through card accepting services.   

The Faster Payments Service has already, and will continue to accelerate these trends. The service allows customers to make phone and internet payments any day and at any time, within two hours rather than three days. This offers solutions to both the general public in making faster payments to public sector organisations, and to these organisations themselves in how they manage their own payments to suppliers and customers.    

The attraction of using this service is that payments can be made – end-to-end – outside of bank working hours. It is forecast that over the next few years Faster Payments will help to push volumes of interbank online, phone and standing order payments from the 2010 figure of 629 million to 753 million in 2018.

The benefits of online payments
The benefits of public sector organisations offering online card payment facilities are numerous. Firstly, it is a flexible and convenient service that allows consumers to make a payment at any time of the day, on any day of the week. This is particularly helpful for those unable to visit a bank or Post Office, or make phone payments during working hours. In addition, there are security benefits and cost savings to be made from minimising the amount of cash kept on premises. Importantly, this facility also means an organisation could receive the payment quicker as there is no need to wait for a cheque to arrive in the post.   

Paying by card does, however, require some consideration and care to be taken. For example, if local authority departments accept card payments then the onus is upon them, as a merchant, to ensure that they meet industry security requirements on collecting and storing data. Known as the Payment Card Industry Data Security Standard, it provides guidelines on protecting cardholder data, maintaining a secure network, using up to date anti-virus software, and implementing access control management – to restrict staff access to cardholder data.    

The standard also prohibits the storing of sensitive authentication data, such as the credit card security code, and insists that retailers truncate card account numbers on receipts so that all but the last four card digits are withheld.
Organisations can visit www.theukcardsassociation.org.uk for more information on accepting card payments.  Other advice and guidance surrounding fraud prevention is available from www.financialfraudaction.org.uk

The future developments
Online transactions can prove useful to smaller public sector organisations too. We are already witnessing some schools accepting online payments for a school trip or for school lunches, rather than having to manage numerous cheques from different parents for different activities. In the future, we would expect the take-up of this service to increase, as other schools begin to appreciate the merits of using online payments in this way.    

Local authority leisure centres may also seek to drive their online presence and minimise the administrative and security burden of accepting cash payments by offering online services.   

The Faster Payments Service has also paved the way for future innovation, because it has opened up the possibility of developing a mobile payments service for making payments between bank accounts by using the existing infrastructure that was built for the Faster Payments Service. At present the Payments Council is considering the case for introducing this service.    

Mobile payments are already proving popular within the public sector, as seen with the payment of congestion fees via mobile phone.    

Payment innovation has played an important role in the public sector, and demand for new more efficient payment facilities, such as online services, will remain high. With the right fraud protection and simple, easy-to-understand payment advice available on public sector websites for all customers, those accepting payments for public services can make full use of online technological advances.