LONDON — In the United States customers pay by check, by cash or credit card. Very rarely if ever are automatic transfers used for direct mail purchases.
However, in the United Kingdom they have been successful payment methods. In fact, in some cases direct mailers ask for direct debit or credit card only…no cash or checks.
In the UK there are two types of automatic transfers; bankers order and direct debit. A bankers order is an agreement between an individual and a bank to pay a fixed amount monthly, quarterly or annually to a third party.
Direct debit is an agreement between an individual and a company to pay a variable amount monthly, quarterly or yearly.
The key difference between the two is that a bankers order is cancelled direct with the bank and a direct debit is only cancelled by the consumer contacting the organization. A bank cannot cancel a direct debit.
Charities usually find bankers orders more cost effective for up-front recruitment. However, from a lifetime value point of view direct debit may be preferable because it enables the charity to automatically upgrade via telephone.
If a charity upgrades via a bankers order, the existing bankers order needs to be cancelled or a new one needs to be setup.
While it is becoming apparent that both bankers order and direct debit attract direct types of people, WWAV has found through testing the same list and creative, that a different profile does exist between bankers order and direct debit donors.
The bankers order donor has a tendency to be older- -age 50+ versus the direct debit donor who tends to be under 50. In addition to a different demographic profile, there is a big difference in response rates between bankers order versus direct debit donors.
Our testing has shown that the difference can be as much as a 35 percent drop off from bankers order to direct debit. Keep in mind, with direct debit you can automatically upgrade the donor via telephone to give a greater amount.
The main reason this technique of automatic transfers started with charities was to attract donors who normally would not give a one-time gift.
When we started testing the technique several years ago, we found that we could attract a younger group who would give as little as £2 per month via automatic transfer versus giving a one-time gift of £10.
On the surface, £2 does not seem substantial. However, over the course of the year £2 becomes £24. Remember you have the ability to increase the £2 with a phone call to the donor. The cost of automatic transfer is less than processing checks or credit cards.
Credit card companies are another area where direct debit is used. Direct debit is set up to pay the monthly minimum payment and typically it is used to payoff the minimum monthly amount. That’s fine if you are a revolver.
However, if you normally pay off your balance in full this process then generates instant interest payers. A supplemental payment would be needed to pay off the balance to avoid interest charges.
Automatic transfers are used extensively in other areas of consumer marketing from merchandise to magazines and memberships. They all work in the same fashion as with charities.
Why is this extensively used in the UK and not the United States? In one word: trust. UK citizens have a tendency to be more trusting of financial service institutions and the whole direct debit concept.
Companies that provide direct debit support it by explaining the safety and ease of direct debit in advertising campaigns on UK television stations.
Culturally the United States is a check payment society. Most people get their wages by check and pay their bills by check, whereas in the UK workers receive their wages by direct debit and pay their bills by direct debit. Checks are rarely used.
As I have discussed in previous columns the major key to success in the United Kingdom or any foreign market for an American direct marketer is to adapt to the marketing norms of that culture. Direct debit can play a major part in the success of anyone’s launch into the UK market.
Brian H. McConnell is president of the WWAV Rapp Collins Group, North America. WWAV is Europe’s leading direct response company, headquartered in London with offices throughout Europe.