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4 top tips for how business can help in a cost of living crisis and the human behaviour driving sweeping changes in Open Banking

Running a business is tough in the UK right now. There are rising costs in managing business coupled with strained customer finances meaning less spending. Should businesses pass their rising costs on and risk customers walking, or absorb those costs whilst wondering how sustainable that is? What is the impact of the cost of living crisis and how will it change human behaviour?

With inflation at record levels reaching 11.1% in October, rising energy bills despite the government guarantee, hiked food prices, mortgage and borrowing rates and rents are all putting pressure on household purses and managing business, especially for smaller business. These pressures, the government’s energy price cap ending in April, is causing people to continue to cut discretionary spend and row back on things like entertainment and dining out.

As footfall on the high street is yet to consistently recover from COVID, accelerating the move online, high street sales have also been dropping. The consumer confidence index has plummeted to a 50 year low. What is human behaviour regarding finances in response to pressure? Are there any sweeping trends to be trusted?

Various opinions suggest that if you’re a smaller business you’re needing to raise prices throughout this year, leaving the consumer to cope with increased costs on all fronts. Why? In Q1’22, an average business electric bill was about 30% higher than in 2021. There’s only so much managing business can swallow these sorts of increases.

If your business is energy or transport intensive, like manufacturing or logistics, you’re already feeling the pain. If you’re a service business, it’s lack of resources and quality talent that’s making life difficult, with strange human behaviour emerging in recruitment, the stretch in the labour market is being felt from all angles, and that puts pressure on wage increases.

But some say there has been a longer burn downturn, simmering in the background – a structural problem: lack of productivity growth, a peculiar human behaviour given no businesses, and certainly not smaller business, are cutting back on hours. This is what has led managing business in the UK to be hit by the cost of living crisis and have record inflation more keenly felt than elsewhere in Europe or the United States.

This, coupled with a lack of consumer confidence, is taking its toll on large companies and smaller business and, as well as high interest rates, resulted in a contraction in 2022 ending. Last year some were forecasting a long drawn out two year recession; now we’re in 2023, for Q1 at least, we’ve managed to scrape above dipping into recession, but where the Bank of England and so many others think a recession is inevitable, how long can we manage business and keep trading?

The problem is, it’s not all within our control; like so many things, finances included, sense of control dictates human behaviour. It’s likely that the more anxious we feel, the more control we want. And when it’s oil prices smaller business managing business and a slowdown in China, higher US rates and global sanctions against adversarial actors contributing to the UK downturn, control is not controllable.

So what you can do, whether you operate a corporate or are in a smaller business, to weather this downturn, and are there any sweeping changes you need to make to ensure you get the right human behaviour emerging when managing business?

Here are our 4 top tips for managing business during a cost of living crisis:

1. Support employees

2. Focus on customers

3. Control costs

4. Offer flexibility

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1. Support employees

Supporting employees is the number 1 way in which, from smaller business to corporate, can help. Retain staff where you can, if you’re thinking about redundancies, is a partial week possible instead, whereby keeping more employees with an income to stay afloat? Perhaps your smaller business or corporate could facilitate a car sharing scheme or adopt the cycle to work scheme to help employees save fuel costs, issue food or child care vouchers, as well as, or instead of, salary raises that will mean managing business profits activity.

2. Focus on customers

Whilst managing business is your day job, your customers are doing that too, as well as their personal lives. Show your customers you’re thinking of them and managing business to accommodate this cost of living crisis is likely to elicit a reciprocal human behaviour – demonstrate you’re considering them, and they’re more likely to stick with you.

There’s new payment technology called Open Banking that you can adopt that makes it easy for your customers to pay. They receive a secure link, ‘pay now’ button or QR code via text, email, WhatsApp or post, and within a few clicks they’re taken into their online or mobile banking app where the payment you’re requesting is already set up – no inputting account or card numbers, no looking up references or amounts with Open Banking – simple frictionless payments mean your customers are more likely to pay, pay sooner and, by making it convenient and secure for them, be the low stress low maintenance supplier of choice influencing their human behaviour.

3. Control costs

You can’t expect for the type of human behaviour that results in loyalty if you’re not doing all you can to control your costs, but be wary of trimming your goods and services, as customers will be looking for value, not sweeping changes to their detriment.

One area where you’re guaranteed to save costs is your payments. If you adopt Open Banking, collecting direct and instant bank account to bank account payments will save you around 80% compared to taking card

payments. And if you collect payment via bank transfer, consider how long (and at what cost) it takes you to reconcile those payments. Open Banking payments arrive in your account, immediately, and automatically and correctly referenced. Open Banking will save you time and money. And if you use Open Banking for Variable Recurring Payments, even more time and money is saved.

4. Offer flexibility

It may seem contrary in a downturn to give your customers flexibility, but flexibility equals control; giving control makes people feel at ease; the corresponding human behaviour being trust and loyalty.

Open Banking helps here too. If you send an Open Banking request for payment, you can enable discretionary options like instalments or allowing customers to ask for an extension.

Variable Recurring Payments allow people managing business to set up repeated payment agreements with their customers where the customer doesn’t have to approve every payment every time – Variable Recurring Payments are like smart direct debits. Where customer and business agree (be it smaller business or larger corporate) parameters like maximum amount and frequency, repeated payments are collected by the managing business without intruding customer approval requests every time.

The difference between Variable Recurring Payments and direct debit is that set up is in minutes, money transfer is instant, and the Variable Recurring payments can be altered up to the second it’s paid – whereby giving customers control, so they’re more willing to keep the repeated payment mandate in times of stress, rather than a panic cancel.

Also, if your business offers a service that means your customers are transferring payments between accounts in the same name eg from current account to savings, loan repayment, credit card or pre-payment top up account, then you can offer the Open Banking Variable Recurring Payments use case that’s live: Sweeping.

Sweeping is the first use case for Variable Recurring Payments to go live and it’s enabling people to top up pre-pay card, pay off loans, sweeping extra funds into savings accounts efficiently, so they have the time and head space to spend on everything else.

It’s Variable Recurring Payments, and Sweeping, that will make your customers feel like they have the control they need to weather this downturn, and which will mean they’re less likely to switch off those Variable Recurring Payments that they are getting used to sweeping in directions that are financially beneficial for them.

If you’re looking to garner the human behaviour that will help managing business through this storm easier, talk to Ordo about our Open Banking products including Variable Recurring Payments and Sweeping – there’s no time to lose!

Adopting Open Banking Variable Recurring Payments is essential for business to save costs and keep customers. Discover the human behaviour needed to weather a cost of living crisis