Auto payments for MFIs

14.07.2020 Auto payments for MFIs

Speed has become an essential element of modern life, especially in megacities where people are statistically more forward-thinking and tech savvy. Hence, every chance to have a rest, spend time with your loved ones and ‘reboot’ becomes all the more important. And anything that helps to make more time for all of this is positively welcomed. In particular, the technology that enables us to automate boring, routine operations and not to waste time on them or keep them in focus. Automatic payments are an example of such technology.

What is an automatic payment?

This tool is also known as a recurring payment, subscription-based payment or regular payment. It allows the customers to link their cards to their accounts and opt for regular automatic withdrawal of funds. After the first successful transaction, the card details are stored and the customer doesn’t need to fill out the payment form again in future. The payment takes place automatically according to the schedule agreed upon by the customer and the service.

The technology is beneficial not only for the customer but for the business itself, and its benefits still seem to be underestimated in the market, with only 4.9 percent of companies using it. This technology enjoys the highest demand in the following areas: software and online services, rental services, public and housing utilities, health and fitness centres, publishing houses, information security and access control services, internet/telecom and mobile communications, online games, educational and entertainment portals, charities, etc. According to a co-founder of the MoySklad warehousing service, about 30 percent of their customers used to downgrade to a free plan every month because they forgot to make a prepayment for the basic plan, leading to a reduced average monthly payment for the company. Auto payments improved this situation.

MFIs, collectors and recurring payments

In times of crisis that make life hard both for borrowers and microfinance institutions, the question of improving the payment discipline looms large. According to a report by the Bank of Russia, after the end of the stay-at-home period of the coronavirus pandemic, MFI loan portfolio dropped as much as 5 percent in May 2020. The Bank of Russia points it out that this drastic portfolio decline could be associated with the sale of overdue loans to collectors. The increased activity of MFIs in the debt sale market is also confirmed by SRO ‘MiR’, the largest self-regulatory organisation in the market. At the same time, according to the State Register of Microfinance Institutions, 231 companies have withdrawn from the market since the start of the year (1658 companies have remained) since many of them couldn’t cope with the increased burden of overdue debts. The alternative is to set up an internal collection service, which only the largest microfinance institutions – microfinance companies – can afford.
This is where recurring payments come in handy. Regular promotional offers to give bonus points for setting up an auto payment has been common practice for quite a while, especially among banks and telecom operators (e.g. Sberbank, Beeline in collaboration with the Bank of Moscow, Tele2 in collaboration with BANK URALSIB), and has proved successful.

The VEPAY service has an elegant solution to this challenge in place, and we are looking forward to a fruitful collaboration with all MFIs. Improved financial performance (the reduced share of bad loans and increased payment conversion on the website) of those companies that have decided to implement this tool will undoubtedly have a positive impact on their future operation in the microfinance market.
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