How can organisations strike the right balance during the cost of living crisis? Are flexible payments the answer?

The public sector has a social responsibility to support its customers while ensuring its own cash flow isn’t neglected.

With inflation still stubbornly at a 40-year high, it’s difficult for any household or organisation to keep pace with rising costs. Despite private sector wages rising by 7.3% in the UK – and by 4.2% in the public sector – the real value of take-home pay is still falling, which could soon push more people into council tax and/or rent arrears.

16% of the general population now say that they’re in ‘financial distress’

It’s not surprising that the latest Vulnerable Customer Exclusion Report from the Vulnerability Registration Service’s (VRS) revealed that 16% of the general population now say that they’re in ‘financial distress’ and are struggling to keep on top of living costs. This rose to over one in four (27%) for society’s most vulnerable people. It’s worrying news for the public sector, whose essential services could be threatened by a drop in revenue, not to mention the cost of recovering debts.

As councils across the country prepare to potentially raise their taxes by up to 4.9%, the move could be a lifeline for many authorities. Yet, it could see even more households plunge into deeper financial distress. Such schemes will only be successful if households have the means to pay, and need to be backed by reliable digital payment systems that mitigate the risk of arrears.

Changing expectations about flexible payments

While today’s inflation rates are the highest they’ve been in decades, the world is still recovering from COVID-19, which also caused financial vulnerability to soar. Flexibility was key to overcoming the challenges caused by the pandemic, whether this was through government-backed mortgage holidays or, on a smaller scale, businesses simply offering their customer’s different ways to pay.

‘Navigating the Future of Payments’

When we released our report, ‘Navigating the Future of Payments’, we spoke to several business owners who agreed that flexible payments were key during periods of economic instability. According to Paul Williams, Executive Chairman of insurance provider Ripe Thinking his teams had to quickly adapt to offer payment holidays due to financial hardship during the COVID-19 pandemic.

Now that the effects of the rising cost of living are having a tangible impact on the community, the public sector could take note. We’re already seeing this in the private rental sector, where more than half of landlords said they would consider giving their tenants some flexibility on their payments.

Digital transformation within payments and banking

The ongoing digital revolution within payments and banking can only facilitate this. We’ve already surpassed the tipping point of becoming a predominantly cashless society. Now, more advanced technologies such as open banking – which uses connected data to personalise experiences – are paving the way for new ways to manage money. APIs that facilitate open banking is also helping organisations to completely overhaul their existing payment systems by ‘plugging in’ to other tools that manage accounts, for example, their CRM.

This gives organisations much better visibility over their cash flow and liquidity while dramatically improving the customer experience thanks to the insights they can offer. Administrative staff can also benefit from less repetitive tasks such as data entry or reconciliation, allowing them to focus on time-sensitive tasks.

For the public, it means that they’ll be able to keep on top of their payments by requesting terms that suit them – and councils can add, amend or cancel Direct Debits in real-time, with information automatically updated across all systems. This reduces the risk of consumers falling into arrears while boosting cash flow for their creditors. The VRS noted that some people facing difficulties may not want to, or know how to, ask for help. By making it as simple as possible to offer alternative ways to pay, it removes this barrier.

Of course, like any other service that’s powered by data, consent and compliance is key, particularly for the public sector. Using an FCA-accredited payments provider specialised for the public sector, such as our recent acquisition Pay360, can put organisations at ease.

It’s also important for organisations to make these systems as accessible as possible. Not every customer will be digitally-savvy, so investing in training and creating resources that explain any new system will be crucial for implementing it successfully.

Flexible payments is the future of finance

Across all touchpoints today, consumers expect a simple, intuitive experience when paying for goods or services. Seamless, secure and branded journeys are now the norm whether people are shopping for groceries online or paying for utilities. Any public sector company that ignores these risks is being left behind.

In comparison to agile startups and digital-first organisations, there are some barriers that the public sector faces when transitioning to offering flexible payments. As Paul from Ripe Thinking told us, “achieving…flexibility is near-impossible for big [insurance] companies, who have built their own systems and are locked into legacy plans for payments.”

Yet, as public sector organisations look to digitise and update across all operational areas, including payments, it presents an opportunity to invest in the right systems that can help them to provide a better level of service – while upkeeping their duty of care to the public.


Written by Andrea Dunlop, Managing Director, Access Paysuite


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