Escaping the direct debit trap

- By Collaborative Media & Publishing
Direct debit sounds like a sweet solution to avoiding late payments, but it comes with a sting in the tail. What consumers gain in convenience they can quickly lose by relinquishing control over their finances.

Most Australians rely on direct debit for at least some of their recurring payments. Half of people use direct debit to pay for utilities, insurance, phone and internet, according to a survey by financial data firm illion[1].

Out of sight, out of mind

But the same thing that makes direct debits seem like a good idea is also the reason they're a risk.

A set-and-forget approach takes away the risk of forgetting to manually pay a bill, but it keeps those payments off the radar. People can be lulled into a false sense of security that their finances are under control.

Reserve Bank of Australia research has revealed the number of automatic payments for bills doubled between 2013 and 2019 as people have become accustomed to the seamless nature of direct debit[2].

"What we're finding is a lot of people just aren't realising that those payments have occurred, or how much is going out in that invisible money type of process," says Keith Brown, BPAY Group’s General Manager Product, Scheme and Business Development.

There is another option to the subscription path that can combine convenience and control.

"BPAY allows you to decide how much you pay and when you pay it, allowing you to plan it around your other budgeting processes. It helps manage your debt better and gives you a clearer view of your budget," says Brown.

All care and no responsibility  

Setting up a direct debit means another company has total control of how much comes out of your bank account.

It's difficult to stop a direct debit once it's started – and credit card bills or even utility charges can wildly fluctuate. Next come the dishonour fees, interest, negative balances and a whole world of financial pain.

The NSW Energy and Water Ombudsman found that close to two-thirds (61%) of all complaints had to do with billing issues, with half of those specifically about higher-than-expected prices[3]. A total of 1344 complaints were from billing errors alone3.

As bills become more frequent and expensive, people must weigh the potential costs of using direct debit against its convenience.

"BPAY is in your corner. We want to get consumers back in control of their payments," Brown says.

Starting out on the right financial foot

Young people are among the highest users of direct debits. Seven out of ten millennials opt to direct debit their bills rather than manually pay them when due1.

It's a well-intentioned effort to avoid falling victim to late fees and missed payments. The illion survey also found that 10% of millennials had phone, credit card and buy-now-pay-later bills overdue in the preceding year, while 9% missed the deadline on their electricity and loan payments1.

Younger people typically have lower income and less experience managing their money. The flow of weekly, fortnightly, or monthly automated payments can quickly become a torrent, creating a bigger problem.

“BPAY makes it easier to establish healthy financial habits,” Brown says.

"So you've got a bill that is due on a particular date. Rather than paying the whole amount, you could pay a smaller amount per week up to that date. By the time you get to the due date, you've already paid off the bill in incremental prices," adds Brown.

That's a much more pleasant surprise at the end of the month.
 
[1] Illion: How Australians pay their bills (March 2020). Retrieved from https://www.illion.com.au/wp-content/uploads/2020/03/How_Australians_pay_their_bills.pdf
[2] Consumer Payment Behaviour in Australia | Bulletin – March Quarter 2020. (2020). Reserve Bank of Australia. Retrieved from https://www.rba.gov.au/publications/bulletin/2020/mar/consumer-payment-behaviour-in-australia.html  
[3] Energy & Water Ombudsman NSW Annual Report 2019/20. Retrieved from https://www.ewon.com.au/content/Document/Annual%20Reports/AnnualReport_19-20_WEB.pdf

Published by BPAY Pty Ltd (ABN 69 079 137 518) email: marketing@bpay.com.au. The BPAY Scheme is managed by BPAY Pty Limited.  When you use BPAY payment products, the BPAY Scheme is paid fees relating to processing costs and BPAY Scheme membership.  Contact your financial institution to see if it offers BPAY payment products and to get the Product Disclosure Statement.  Any financial product advice provided by BPAY Pty Limited in relation to BPAY payment products is general advice only and has been prepared without taking into account your objectives, financial situation or needs.  Before acting on such advice, you should review the Product Disclosure

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