RO-AR.com: Why Payment Innovation Fails

Key Take Aways

1. Payment innovation fails when the industry assumes that “build it and they will come” is sufficient; adoption requires consumer awareness, trust and clear communication.
2. Direct Debit remains a highly resilient payment method because it is well understood, trusted, embedded in biller systems and supported by a robust consumer guarantee.
3. The success of Direct Debit was not only technical; it was also a coordinated marketing and branding exercise across banks, billers and Bacs.
4. Consistent branding was central to Direct Debit adoption. The same logo, wording and guarantee appeared across billers, creating familiarity and confidence.
5. Newer payment methods such as open banking payments, variable recurring payments and pay by bank may be held back by fragmented naming, unclear branding and limited public understanding.
6. Faster Payments was a major infrastructure success, but it did not develop a distinct consumer-facing brand and became absorbed into the broader concept of online banking payments.
7. Direct Debit is unlikely to be replaced in the short to medium term because it works well for most consumers and billers.
8. Variable recurring payments may have a strong role where Direct Debit does not work well, particularly for customers with irregular income, multiple income sources or a need for tighter control.
9. The modern payments landscape is becoming more complex, not simpler, creating operational and communication challenges for firms.
10. The key issue is not whether consumers need more payment methods, but whether existing payment methods can be improved and made easier to understand.
11. Trust is fundamental in payments because payments involve people’s money and finances; any new method must be secure, reliable and trusted before mass adoption is possible.
12. The industry needs to focus on bringing open banking into public consciousness in a way that makes consumers feel informed, comfortable and safe.

Innovation

• Use the Direct Debit model as a blueprint for payment innovation: coordinated industry promotion, consistent branding and clear consumer education.
• Create a single, recognisable brand identity for open banking payments, variable recurring payments or pay by bank to reduce consumer confusion.
• Combine the trust, awareness and guarantee of Direct Debit with the control and flexibility of variable recurring payments.
• Develop better payment methods rather than simply adding more payment options.
• Target variable recurring payments at customer segments for whom Direct Debit works less well, such as people with irregular incomes, low incomes or multiple income sources.
• Use open banking to provide greater consumer control over timing and approval of payments.
• Build payment propositions around customer comfort, safety and understanding, not just technical capability.
• Future-proof existing infrastructure while allowing new payment services to develop without introducing unnecessary risk.
• Learn from the current account switch service, where the industry coordinated around a clear objective and continued to invest in public awareness.
• Treat marketing, branding and consumer education as core components of payment innovation, not secondary activities.
• Consider whether payment innovation should integrate with established trusted products rather than compete directly with them.
• Focus on adoption design: making new payment methods second nature to consumers through repeated, clear and consistent messaging.

Key Statistics

• Mike Hutchison joined Bacs in the very late 1990s.
• Direct Debit went live in 1970.
• Direct Debit is described as having been around for more than 50 years and still growing.
• Direct Debit is still growing by roughly 2% a year.
• 85% of consumers are described as actively wanting to pay by Direct Debit, championing it or looking for it when paying regular bills.
• Billers receive Direct Debit funds into their account on the due date in “98 point something percent” of cases.
• Faster Payments is described as having been developed around 20 years ago.
• The current account switch service is described as being around 10 years old.
• The newest campaign for the current account switch service was described as having launched in the last couple of months.
• The speaker gave examples of having around 15 Direct Debits coming out of his account each month, while another person had nearer 30.
• Direct Debit was developed in the 1960s before going live in 1970.
• The transcript references payment innovation cycles where some technologies may take 10 to 20 years before becoming visible or widely used by consumers.

Key Discussion Points

1. The payments industry has changed dramatically from a world of cash, cheques, standing orders, Direct Debit and click-clack card machines to today’s digital payment environment.
2. Direct Debit was originally created outside banking, by Alistair Hanton at Unilever, to collect money for ice cream sales.
3. Direct Debit succeeded because banks, billers and Bacs worked together to promote awareness and drive adoption.
4. The Direct Debit brand was deliberately standardised, including consistent wording, a consistent guarantee and a black-and-white logo that could be used universally.
5. Newer payment methods have not yet matched Direct Debit’s clarity of brand, consumer understanding or trust.
6. Faster Payments transformed account-to-account payments and now underpins online banking and open banking, but it lacks a distinct consumer identity.
7. Direct Debit remains deeply embedded because it is simple, trusted and requires little ongoing consumer intervention.
8. Variable recurring payments may be most useful where customers need more control, especially where income is irregular or where Direct Debit unpaid rates are higher.
9. For billers, Direct Debit has historically been the cheapest way to collect regular funds from customers.
10. Pricing will be important for variable recurring payments, but their value may be strongest where they reduce operational issues associated with failed Direct Debits.
11. Payments innovation must account for different customer needs; not everyone wants online banking, more control or more payment choice.
12. The industry needs to make new payment methods credible, safe and usable in the eyes of consumers before expecting widespread adoption.

Description

This podcast is a discussion between Chris and Mike Hutchison, director of the Regular Payments Marketing Company, on why payment innovation often fails. Drawing on Mike’s long experience in the payments industry, including his time at Bacs and Vocalink, the conversation explores the evolution of payment methods from cheques, cash and Direct Debit to Faster Payments, open banking and variable recurring payments.

The central argument is that successful payment innovation depends on more than infrastructure. Direct Debit became a lasting success because it combined a strong product, a robust consumer guarantee, coordinated industry action, consistent branding and sustained public education. By contrast, newer payment methods risk slower adoption because consumers do not always understand them, recognise them or feel confident using them.

The podcast is particularly relevant for senior leaders in financial services because it highlights the gap between technical innovation and market adoption. Open banking, variable recurring payments and pay by bank may offer meaningful benefits, especially for customers who need more control or have irregular incomes. However, the discussion cautions against assuming these methods will automatically replace Direct Debit.

The broader message is that payment innovation succeeds when it solves real customer and biller problems, earns trust and is communicated clearly. The industry may need fewer competing labels and more focus on creating better, trusted payment experiences that consumers can understand and use with confidence.