Analyzing financial data

When it comes to mobile carriers, it seems opinions are fairly evenly split. There are those who sing the praises of their mobile carrier of choice, and there are those who take to internet forums to decry that same provider. It seems it doesn’t matter which provider it is, there are those who support and those who despise.

Besides customer service, one of the biggest complaints people have about their mobile carriers are their fees, and in particular, fees that don’t make sense to consumers, and more closely resemble a simple grab for cash. These kinds of fees include fees for paying by credit card (an overhead that most businesses factor into their pricing anyway), fees for not paying by credit card (so they profit from increased prices, AND your use of a cheaper (for them) payment method), fees for paying late by a few days (which really doesn’t impact the business significantly), and worse.

Take, for example, the recent rise in the use of security deposit payments by mobile carriers to secure payment for services. The latest carrier to jump on this bandwagon, Vaya, announced this in an email to customers last week. Here’s how they broke the news on 4 February:

As we’ve grown, we’ve enjoyed providing mobile service for all of our customers, unfortunately, there’s a small amount of customers who use the service without intending to pay. Here at Vaya HQ in Brisbane, we’ve had debates about best way to tackle this problem, not just from our side, but from your side, our customers. The obvious solution would be to simply increase the cost of our plans to accommodate a certain percentage of non-payment, like retail stores do, which effectively means each of our customers (i.e., you) would have to pay more to cover the customers who don’t want to pay. We didn’t want to do this and we aren’t.

Instead, we’ve decided to opt for, like some of our competitors, a once-off, refundable Security Deposit of $20 per mobile service. This Security Deposit will be required of all of our customers, at a rate of $20 per mobile service, and will be drawn from your nominated payment source along with your next bill payment (this month). We will only apply the Security Deposit in the event of non-payment of your monthly invoice or on your final invoice (should you ever decide to leave Vaya). In the event of having it applied to your final invoice for your final service, any remaining balance will be directly refunded to you.

Vaya aren’t the only ones to do this, just the latest. TPG started the trend a couple of years back with their “security deposit” scheme, which earned them the ire of their customers. TPG have changed the wording of their terms and conditions to almost completely remove any reference to a security deposit, replacing it instead with a prepayment clause which has almost the same effect, except that they’re under no obligation to refund the prepayment amount to you when you cease to use their services.

Let’s look a bit more closely at what Vaya are doing (note that this also applies to Live Connected, which they acquired a little while back).

Like any service provider, they have issues with non-payment, which are hardly unique to Vaya. Telstra, Optus, Vodafone, and every one of the MVNO carriers which use these networks have issues with customers who don’t pay their bills. I have been a customer of each of the big 3 telcos, and never once have I been asked to pay a security deposit, and they are (each of them) significantly bigger, with significantly more customers, and hence significantly more non-payment issues than Vaya.

Vaya’s logic is that the two options to tackle the problem of non-payment are to either (a) increase the cost of services or (b) opt for a required security deposit. They’ve gone for the latter, and while its refundable, that really isn’t much comfort for its 30,000 customers. By imposing this fee across the board, Vaya will secure themselves around $600,000.

Why it won’t work

Firstly, the deposit isn’t charged prior to service provision. It’s being charged now (in February 2015), for new customers, and those who’ve been with the company for months or even years. The only customers that Vaya should be continuing to provide services to, and who are likely to be asked to pay this deposit, are those who (presumably) already have a reasonable payment history — one would assume (or hope) that those customers who already have issues in paying, or have steadfastly refused to pay, have already been cut off, or soon will be.

This just rams home the point that there’s not much point charging a deposit like this, especially if you provide the service (and have done for an extended period) before the deposit is charged.

Let’s look at some parallels. A good one is residential tenancies. A bond is charged (typically four weeks’ rent), and it’s charged up front. You don’t get those keys until you pay a bond. Same thing with hire cars: some providers charge a bond or a deposit, and they charge it (and make sure you pay it) before they hand over the keys to their vehicle. Vaya’s approach, in these analogies, would be to hand over the keys to the house or the car, let you use it for a couple of weeks, months or even years, then seek to charge the security deposit on the off chance you won’t pay in future.

By that time, you might have already burned down the house, or driven the car into a river.

If I had been with a service provider for a while, with no history of bad payments, and they sought to impose a security deposit on me, I’d leave. Good service or bad, if someone who I’ve contracted with changes terms like that, I’m gone.

Secondly, a security deposit is a very, very poor substitute for a thorough credit assessment. No doubt Vaya conduct credit checks on their customers, but if they’re having such a huge issue with non-payment that they have to levy a $20 deposit on every single customer, something tells me their processes just aren’t working properly. How are Vaya’s customers so unique that they have to implement something that none of the major telco providers do?

Thirdly, a deposit is a poor deterrent. If I’m the kind of nefarious individual that Vaya refers to with the phrase “customers who use the service without intending to pay”, then why do I care about losing a $20 deposit? I don’t. A $20 deposit may deter people who genuinely overlook mobile bills, but it doesn’t do much to the person who has the intention of not paying. What makes a good deterrent? Keep your fees competitive, offer a variety of payment methods, and use a well structured credit management process when people default. Send letters. Make phone calls. Have a good process in place. Make default entries on people’s credit files when they don’t pay (and when the legal criteria are met). Anyone who’s suffered the indignity of a credit default listing knows how effective a deterrent that can be; you basically say goodbye to ever receiving credit or post-paid services for the next five to seven years.

If your credit management process don’t work sufficiently to mitigate your loss from non-paying customers, then the issue lies with your processes, not with your customers, and slugging all of them a $20 security deposit is, frankly, just lazy. Non-payment of invoices is  fact of life when you’re operating a business, no matter how big or small you are, and if you want to be in business, you wear that risk, and you mitigate it, not your customers.

The last concern is a bit different, but it relates to the security of that deposit. How is Vaya securing your deposit to make sure that it can be returned to you? Given that the rationale for the deposit is non-paying customers, and that this decision has to be taken to mitigate that risk, what risk is your deposit exposed to? Are you guaranteed to get your deposit back if Vaya finds itself in financial troubles? It might only be $20, but it’s still your money, not theirs.

What if Vaya changes their terms and conditions down the track (in the same manner that TPG did)? What if they all of a sudden decide that this is no longer a security deposit, but it’s a prepayment for services, which isn’t refundable. That’s a nice little profit for Vaya right there.

What can you do about it?

If you’re a customer of Vaya or Live Connected, and you’re being slugged with a $20 security deposit for reasons that really haven’t been properly explained, you’ve got a couple of choices.

You could complain to the TIO or the ACCC that the change of terms and conditions by your provider is unfair or unreasonable, but let’s be honest, that’s not a plan that’s likely to succeed.

I’d be looking at options for better service provision elsewhere. There’s a good number of pre- and post- paid mobile providers in the market, and there are some very competitive deals out there. A good many of these deals don’t require the payment of security deposits, and you might be surprised the service could actually be better elsewhere as well.

If you are minded to leave, be careful for any port-out fees or contract break fees. By changing the contract on you, with little notice, you have a strong argument to have any such fees reduced or completely removed. Speak to your provider, tell them what you think, and tell them what you’re planning to do, and discuss it with them. Try to negotiate an outcome that you’re happy with.

Does your carrier charge ridiculous security deposits, pre-payments or other fees like this? Let us know.

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    I’m not happy that Vaya has charged me a $20 safety deposit. However, can you tell me where I can get a cheaper plan, without it being prepaid?

    I’ll risk my $20 safety deposit, but only because I’m saving $30/month over a similar plan from one of the big telcos.


    I felt quite annoyed when I got the email from Vaya saying they were charging me a security deposit. I’ve been a customer who pays via direct debit for over two years, I felt insulted.


    Vaya is not a “cheap” MVNO when you factor in the $20 SIM card, $20 “security deposit”, $10 late fee charge a couple of times a year (even though you pay by direct deposit), the outrageous data calculations that encourage you to buy extra data, $10 Plan Freeze fee, $25 Max Power fee with a monthly $10 data bolt on if you want to change from MB to KB billing etc…


    Hey good news! I’m not as apathetic as I thought, 3 VAYA services ported out today…


    Where to, their prices were pretty hard to beat.


    Spintel, Telechoice, Aldi are where most are going to. Woolworths might be starting up again with pre-paid plans on the Telstra network next month – or so an unknown person has claimed.


    Well I am paying $18 month for more than I can use, in nearly a year I have hit the 50% of data mark twice even billed at 1mb intervals which I believe is false advertising. I am not changing to a 40 a month plan just because they charged a stupid $20 security fee, would be dumb to change.


    It’s actually worse than that. Live Connected has 30,000 subscribers; Vaya has 100,000. So they are raising $2.6m with their ‘security deposit’.


    What got me to move was the MaxPower debacle before this.


    Excellent opinion piece. I’m sure Vaya researched to determine how much they could charge before it would overcome consumer apathy, and ensured they charged lower than that.