CHICAGO, IL — The cost of failed payments is estimated to have cost the global economy $118.5 billion in fees, labor and lost business in 2020 according to the latest study from Accuity, a LexisNexis Risk Solutions company.
The total cost of failed payments regionally was $41.1 billion in EMEA, $33.7 billion in the Americas and $43.7 billion in Asia-Pacific (APAC). The report shows that the average cost of failed payments varied across the globe, depending on the type of organization. Banks spent on average approximately $360,000 in 2020 on failed payments – which includes all fees, labor and costs related to customer attrition – whereas the average corporate firm spent just over $200,000.
● 60% of organizations reported losing customers as a result of failed payments
● Fewer than 50% are actively trying to improve their payments process despite nearly all respondents citing disappointment with failure rates
● Over one third of payment data elements are still validated manually and two thirds of organizations identified reducing manual processes as extremely challenging
A failed payment is a payment that is rejected by a beneficiary bank or an intermediary bank in the payment flow. Payments can fail for several reasons including inaccurate or incomplete information, data entry issues due to human error or poor reference data and validation tools.
Key themes that emerged from the findings include:
Customer experience matters: 80% of organizations with over 20,000 failed payments per day reported having lost customers as a result. Failed payments have the biggest impact on customer service, with 37% of organizations reporting a severe impact and nearly 50% indicating some impact.
There is a tipping point: Although fewer than 50% of respondents stated they were actively trying to reduce the number of failed payments, the study found that a failed payments rate of 5% or above was the tipping point that compelled 80% of organizations to act.
Validation processes make a difference: Account number issues were the cause of one third of failed payments and inaccurate beneficiary details were the result of another third. The survey also showed that 66% of organizations found reducing manual processes extremely challenging. Manual processes introduce human error and slow down the payment process, making it less efficient.
Dalbir Sahota, global head of KYC and payments product management at Accuity said: “From our research, we found that while organizations are well aware there is a cost to failed payments, most do not fully understand the impact both financially and from a customer retention standpoint. Tangible costs such as fees and labor might be easier to measure, but the intangible – including customer relationships – can be more difficult to repair. The payments market is fiercely competitive, so it is vital for organizations to take greater measures to improve their payments data to reduce their failed payment rate.”
About The True Cost of Failed Payments Report
The report is based on a survey conducted in early 2021 which generated responses from more than 200 payments professionals across the banking, financial, fintech and corporate sectors. It provides an overview of the payments landscape, explores the key themes that emerged from the survey and provides insight into the various elements that had an impact on failed payments throughout 2020.
Participants represent organizations of all sizes and geographies in both advanced and emerging economies, with the greatest number of responses from Europe (41%) and North America (31%) followed by APAC (16%), the Middle East and Africa (8%) and Latin America (4%).
Accuity, a LexisNexis Risk Solutions company, powers compliant and assured client transactions to help build an interconnected and trusted financial ecosystem. Our financial crime screening, payment services, and benefits compliance solutions help enable financial inclusion while identifying criminal activity and fraudulent players. With deep expertise and industry-leading data and analytics solutions from the Firco and Bankers Almanac brands, Accuity provides unmatched confidence, efficiency, and compliance for customers around the world. Part of RELX, a global provider of information-based analytics and decision tools for professional and business customers, Accuity has been delivering solutions to banks and businesses worldwide for 180 years.