Around 600,000 of the UK’s small and medium sized enterprises (SMEs) are currently using open banking technology to benefit their business in some way. One of those SMEs is plumbers’ merchant, Williams.
Founded in 1972, Williams is a national organisation offering same-day, every day delivery of plumbing and heating supplies to two-thirds of the UK. It has 43 trade counters and regional fulfilment centres across the South East, Manchester, Milton Keynes, and Bristol.
It is a trade-only operation (it does not sell to retail buyers) and the company’s customer base is largely made up of what it calls the ‘one-to-five’ – that is, sole traders, and very small independent plumbing companies employing up to five people.
The company launched its open banking payment scheme – courtesy of PayitTM by NatWest – back in March 2021. We asked Mike Mann, Williams’ Finance Director, to share his company’s open banking journey.
Rising card costs
Mann explained that the company started looking at open banking payment solutions in late 2020, as it explored ways to cut the cost of card fees.
He said: “Our card processing costs had grown out of all proportion with our sales revenue. I think we had four price rises in three years. And they weren’t inflationary price rises. Changes made to the cap on certain card fees meant that we went from a capped £1.50 card charge on quite a large transaction, to a £5 charge, or an unlimited charge.
“So while that didn’t look terribly onerous on the rate card, when we worked out what proportion of our customers used that type of card, it was ridiculous. It got to the point where our card processing costs were 10% of our pre-tax profit.”
As an existing NatWest customer, the bank approached Williams to discuss Payit. The solution offers a new way to collect and send payments online and in person, removing the need for sharing and storing card details.
As part of its research, Williams spoke to PayByLink in the Netherlands, which provides the retailer with an email and SMS payment link delivery service, to better understand how open banking worked. The PayByLink team pointed out that 70% of remote transactions in the Netherlands were done by real-time inter-bank payments (not via cards) and that it was the norm there.
Cheaper, quicker and contactless
Mann continued: “When we started to look at it, we realised there were other advantages. This could have a significant cash flow impact on us because it’s instant settlement, not ‘day plus three’, or whatever your deal is with your payment service provider (PSP). It was obviously much cheaper on a transaction basis, and in a classic case of good timing [as the pandemic hit], it was also contactless.”
That was all the encouragement that Williams needed, and the company rolled out open banking for remote payments and in its branches in March 2021 and on its new website in June 2021.
Although the original plan was to use Payit purely as an alternative to online card payments for the credit control team (which accounts for only a part of Williams’ transactions), Mann quickly realised that the option had the potential to be used in-branch.
The branch staff were enthusiastic about Payit and found it a good way to engage customers, offering a short demonstration of the solution in action. The company also promotes use of the alternative payment option by way of a prize draw.
Prize draw promotions
Mann explained how this works. “We initially offered our customers the chance to win a weekly prize of a top-end barbeque, but for the winter season we asked PayByLink to develop a bit of prize draw functionality so that in the branch, once our customer completes their payment via Payit, they get a confirmation text immediately afterwards like normal and then a moment after that, a text saying, ‘Hooray you’ve won a £50 tool voucher, what do you want to spend it on?’”
He added: “Doing something like that is actually cost-effective for us, because if it’s a one-in-twenty chance of winning, Williams is still saving money every time somebody uses Payit.”
The vast majority of customers who try it, continue to use Payit, although some customers still prefer more traditional payment methods, such as cheques, and Williams continues to provide a range of payment options.
Other advantages, both for Williams and for its customers, include reliability and security.
Mann explains: “As the card industry increases its security, we’re finding more card transactions are rejected on the grounds that, when it’s run through the card issuer’s fraud checks, they believe it’s fraudulent – even when it’s not.
“If customers have had trouble using a card on our website, or paying a monthly account, we’ll just say, ‘Use Payit’, because as long as you have the money in the account it can’t decline it.’”
The merchant also pointed out that using Payit also helped overcome some of the security problems surrounding card fraud. Mann said: “In the days when we were doing card-holder-not-present transactions, every time somebody scammed a card, we were getting hit for the cost of the sale. There is still a residual risk in entering card details online, and Payit removes this security issue.”
Educating its customer base about the additional security benefits of taking card payments by a link-based method has given customers confidence in open banking payments generally. It also offers a smoother customer journey.
Although take-up hasn’t been as fast as the company would like, Mann believes that as the number of similar apps on the market increases, that will grow.
Low-cost, low-impact integration
Making the decision to introduce Payit was an easy one for Williams. The company benefited from minimal integration costs from both NatWest and PayByLink, which recognised the value of adding Payit to its long list of available payment methods, and Mann pointed out that, as it is not a high-cost, high-impact process, the risk of introducing a payment solution like this is minimal.
He concluded: “My question to any merchant, or anybody, looking at this is, ‘Why on earth wouldn’t you?’ If this takes off quickly, you will be glad that you were in there early and you understand the way it works, and how it can benefit you.
“And if it takes off slowly, you haven’t spent a lot of money implementing it. Somebody else has done all the really hard work.”
And if companies are prepared to incentivise their customers to try this new way to pay, Mann sees no reason why they shouldn’t reap some of the benefits too.
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