Securing rental income through Universal Credit
December 3, 2013
With Hammersmith and Rugby becoming the latest local authority areas to start rolling out Universal Credit, is the sector any closer to delivering a solution for the unbanked and are landlords doing all they can to make their preferred methods of payment attractive to residents?
The Government remains committed to paying the new benefit – a combination of six income-related benefits – directly into a bank account. Innovations such as jam jar accounts, run by credit unions, have been much lauded, but where they have been offered, take-up has been low with complexity, cost and loss of resident control cited as barriers.
Prepaid cards too have been touted as a viable alternative to a bank account. They are currently being used to great effect by local authorities administering social fund and direct payments of social care, offering authorities electronic auditing and residents budgeting control. However, while the proposition is a great fit for local authorities in this space – as savings from removing cash handling and processing outweigh costs incurred through banking charges – many believe it unreasonable to expect a resident or the landlord to incur these costs through Universal Credit?
The Government says1 it will be able to make Universal Credit payments into a Post Office Card Account or by a PayPoint Simple Payment card for those unable to access a banking solution – a viable option for those used to budgeting in cash, and, where agreements are in place with their landlord, a place where they can then pay their rent.
However, it is also clear more could be done by landlords and banks to facilitate the take-up of basic bank accounts (including those offered by credit unions) – providing residents with the ability to set up direct debits and standing orders without any on-going fees.
Some landlords are ahead of the game, taking on third-party intermediary roles where their staff are verifying ID and address criteria, and authorising or opening new basic bank accounts. Landlords can also promote basic banking products2 and even signpost or refer residents to specific providers or products which they feel best suit their residents.
Most of the banks will insist on two forms of identification: typically a benefit award letter and tenancy agreement for proof of identity and address respectively. Functionality normally includes direct debits and standing orders – with most also offering a debit card, but no overdraft. In addition some provide low/high balance and payment alerts free of charge alongside mobile and internet banking. On unpaid transaction charges, they vary considerably – ranging from between £8-£25.
Next, is to look at how easy it is for a resident to set up a direct debit and for a landlord to process the request. It’s staggering the number of landlords still replying on paper mandates. Those using paperless systems can set up instructions over the phone with residents in minutes. In addition, offering any collection date in the month also boosts take-up. A straw poll of tenants surveyed by allpay recently at a residents fair in Liverpool showed that 85% were more likely to set up a direct debit if they could choose the day the money came out.
Ensuring residents have multiple ways to pay e.g. via a text or through their smartphone will also be important as they offer residents the control they feel they have with cash and can be used to top-up a direct debit. Text and email reminders have also proven to be a low-cost way to boost collection rates – by over 10% in some cases.
By providing the right support, appropriate flexibility and choice of payment options, landlords can help their residents prepare for Universal Credit and minimise the impact on their businesses.
This article was originally published on the Guardian Housing Network.