Failed Payments, Small Fees And A Bigger Missed Opportunity For Banks

You get the text from a friend at 6.07am.

“Do you know why my rent Direct Debit has bounced? I got paid yesterday. I thought I was fine.”

By 9am they have:

• A failed payment
• An unpaid item fee
• An anxious email from the letting agent

Nothing here was a surprise to the systems involved. The bank could see the salary coming in, the Direct Debit scheduled, the other subscriptions queued up. The failed payment was predictable. Yet the only visible intervention to the customer happened after it went wrong.

The old logic behind failed payment fees no longer holds

There was a time when an unpaid Direct Debit genuinely created work.

Someone might have:

• Checked the account manually
• Reconciled entries
• Generated and posted a letter
• Updated internal records

A fee, however controversial, could at least be tied to an operational cost story.

That is not how it works now.

Today, an unpaid Direct Debit is largely an automated decision:

• Is there enough money?
• If not, apply the rules
• Decline, record, notify

The machine does the work in milliseconds. The marginal cost of “failure” is tiny, but the human impact is not: stress, arrears, friction with creditors, and extra pressure on already stretched advice and collections teams.

So the interesting question is no longer “What is a fair unpaid item fee?”

The more important question is: why are we still designing revenue and interventions around failure when the technology can see risk in advance?

The numbers tell a different commercial story

FCA reforms have moved things forward. Overdraft structures are clearer and some of the most harmful charges have gone. NatWest, for example, lists an unpaid transaction fee of £1.55 per charging period for unpaid transactions, instead of the hefty amounts many customers remember.

That is progress. But even at low levels, the principle still matters.

Take a simple, back-of-the-envelope thought experiment using public numbers.

NatWest Group says it serves over 20 million customers.

Imagine:

• Just 2% of those customers (around 400,000 people) experience Direct Debit pressure in a year
• Each of them has only two unpaid transactions in that year
• The unpaid transaction fee is £1.55

That is roughly £1.24 million in unpaid transaction fees.

Not huge at group level. But it reveals something important.

Now flip the model.

Imagine the same 400,000 customers had access to a proactive bill-management support tool at £20 per year. Something that helped them see upcoming Direct Debits, subscriptions and standing orders clearly before money left their account, so they could move, cancel or plan in time.

That would represent £8 million of value.

In other words, prevention could be commercially stronger than penalties.

Not free compassion at the expense of shareholders. A better aligned, more sustainable revenue base that supports Consumer Duty, protects vulnerable customers and strengthens loyalty.

Banks can see the early signals others cannot

No single player owns the problem of failed Direct Debits.

• Utility firms set collection dates
• Telecoms providers and insurers spread payments across the month
• Lenders and landlords chase arrears
• Subscription platforms quietly renew in the background

Customers carry the cognitive load of trying to remember what leaves when.

But banks are in a uniquely powerful position. They can see:

• Income frequency and volatility
• Outgoing Direct Debits and standing orders
• New subscriptions appearing
• Repeated failed payments
• Persistent overdraft reliance
• Mismatches between income dates and bill dates

For someone living on Universal Credit, a low wage, a pension, disability benefits or irregular hours, a failed payment is rarely a casual oversight. Often it is:

• A timing clash between benefit day and bill day
• A cluster of subscriptions and payments landing together
• A one-off shock (car, boiler, school shoes) that knocks everything off balance
• Simple lack of visibility – they cannot see the full picture until after the damage

From the bank’s side, much of this is visible before the point of failure. The data exists. The capacity to make real-time decisions already exists. That same infrastructure could support prevention, not just rejection.

Consumer Duty: good outcomes before, not just after, harm

The FCA’s Consumer Duty has rightly raised expectations around good outcomes, particularly for vulnerable customers. Banking leaders, fintechs and advice charities are already working hard to respond.

But good outcomes should not only mean dealing fairly with someone once they have fallen behind.

They can also mean helping people avoid predictable harm in the first place.

There are some tough but necessary questions here:

• Could this customer reasonably have been warned earlier?
• Was there an obvious clash between income and payment dates?
• Have there been repeated near-misses or failed Direct Debits that signal stress?
• Is the customer showing patterns that align with vulnerability or problem debt?

When systems can decline a payment in milliseconds, it is hard to argue that there is no time to nudge, warn or prompt in the hours and days beforehand.

This is not about removing all responsibility from customers. People still make choices. But a Duty lens asks: given what the firm knew – and what its systems could foresee – was it fair to remain silent until a fee became payable or a payment failed?

Prevention is operationally cheaper and emotionally quieter

For banks and fintechs, prevention is not only the socially responsible option. It is operationally sensible.

Preventing avoidable failed payments:

• Reduces stress and complaint volumes
• Lowers inbound contact around “mystery” fees and bounced payments
• Supports healthier relationships with creditors and landlords
• Minimises downstream arrears, collections activity and write-offs
• Strengthens trust at precisely the time when confidence in banks is under pressure

For advice charities and money guidance organisations, fewer failed payments mean:

• Clients arriving earlier, before crisis stage
• More capacity for complex cases rather than firefighting avoidable issues
• Clearer conversations about budgeting, because upcoming commitments are visible

For vulnerable customers, prevention can be the difference between “tight but manageable” and “I have lost control.”

Yet most current systems still behave as gatekeepers. They say yes or no at the door. The opportunity is to turn them into early warning systems and guides.

What proactive support could look like (without crossing into advice)

Proactive banking does not have to mean prescriptive advice or nudging people towards specific products.

It can start with simple, customer-controlled visibility and timing support.

My Direct Debits (MDD) sits squarely in that space.

A quick recap of what MDD is – and is not:

• MDD is a simple, user-controlled reminder and financial awareness tool
• It helps people record and see their upcoming Direct Debits, subscriptions and standing orders in one place, before money leaves their account
• It does not connect to bank accounts and has no access to transactions
• It does not give regulated financial advice – it provides reminders, visibility and prompts so people can act in good time

That might sound basic in a world of sophisticated data science. But the basics are often what make the difference between a smooth month and a failed payment.

Imagine if, as standard, more customers had:

• Clear reminders a few days before each Direct Debit
• A simple list of all their subscriptions, with amounts and dates
• Prompts to review rarely used services before renewals
• A view of whether too many commitments are bunched into the same week as rent

None of this tells someone what they must do. It simply makes reality visible early enough to respond.

For banks and fintechs, tools like MDD close the notorious gap between giving guidance and seeing customers act on it. Instead of saying “try to keep track of your bills”, they can point customers to a practical way of doing that, under the customer’s own control.

If you are exploring how to support customers in a more preventative way, you can invite them to try MDD directly via the sign-up page at /auth.

From penalty-based to prevention-based revenue

The deeper shift here is about business model design.

Penalty-based models harvest small amounts of revenue at the point where the customer is least able to afford it and most likely to feel let down.

Prevention-based models:

• Charge fairly for tools and services that help people stay in control
• Align firm success with customer financial stability
• Are more predictable and less politically exposed than fees linked to distress

At scale, that shift could be worth far more than a scattered stream of unpaid transaction fees.

It also fits better with the direction of travel in regulation, ESG expectations and public scrutiny. A bank that is visibly helping customers avoid avoidable harm is better placed to defend its margins than one that still relies on charges people experience as “gotchas”.

What this means for different players

For banks and building societies:

• Map where you already see clear warning signs: recurring unpaid items, repeated use of overdraft just before key bills, mismatched pay cycles
• Ask where a neutral, customer-controlled tool could sit in your journey – for example, at account opening, in arrears-prevention communications, or as an opt-in for people who ask for help
• Review whether small unpaid item income is masking a larger opportunity to build prevention-based services

For fintech leaders:

• Consider how your products could surface upcoming commitments, not just past spending
• Build partnerships with neutral tools rather than defaulting to deep data access that some customers do not want
• Use your agility to pilot prevention models that can later be adopted at scale by incumbents

For debt advice charities and money guidance organisations:

• Integrate practical payment visibility and reminder tools into early-stage support, before clients hit crisis
• Use structured Direct Debit and subscription lists to inform budgeting conversations
• Encourage clients to set up their own reminder systems so they are less dependent on crisis appointments

For FCA and Consumer Duty stakeholders:

• Keep asking whether firms are using their data and systems to prevent harm, not only to react to it
• Recognise and encourage models where customers pay reasonably for tools that keep them in control, rather than disproportionately when they are already struggling

A simple, practical next step

The technology to decline a payment in milliseconds already exists. The missing piece is using similar capability to help people prepare before they reach breaking point.

If your organisation is working on Consumer Duty, vulnerability strategies or better bill-management journeys, now is the moment to experiment with prevention.

You can see how a simple reminder and visibility tool works in practice, and consider whether it could support your customers or clients, by visiting our overview at /how-it-works and trying sign-up yourself via /auth.

A failed Direct Debit should not just be a line item and a small fee. It is often an early warning sign of pressure. As an industry, we can choose whether to monetise that pressure – or to help people manage it before it becomes harm.