Failed payments cost global business $118.5 billion in 2020

payment failures cost business $118.5 billion

By Jeff Domansky

New research offers a staggering look at the real costs of failed payments, the key reasons for most failed payments, and why companies are not working harder to solve the problem.

In fact, failed payments cost $118.5 billion in fees, labor, and lost business worldwide in 2020, according to the latest study by risk solutions company Accuity.

The research estimated the costs of failed payments by beneficiary or intermediary banks in the payments flow in the Asia-Pacific region at $43.7 billion, followed by Europe ($38.1 billion), North America ($33.7 billion), and the Middle East and Africa ($3 billion).

Cost of failed payments cuts across FI operations

Human error and inaccurate data caused two-thirds of the failed payments, according to the 240 banks, fintechs, payment service providers, and corporations surveyed.

Account numbers created one-third of failed payments, and inaccurate beneficiary details caused another third of problems. The survey also showed 66% of organizations found reducing manual processes extremely challenging. Manual processes introduced human errors and slowed down the payment process, creating large-scale delays, inefficiencies, and costs.

“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,” said Dalbir Sahota, global head of KYC and payments product management at Accuity.

Surprisingly, fewer than 50% of respondents 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.

Failure to act on failed payments

The failure to act on failed payments is unacceptable in any organization. It ultimately causes businesses to lose customers and raises operational costs, which must be passed along to bank customers.

Respondents said failed payments cost banks $360,000 on average and cost corporations $220,000.

Accuity found 80% of organizations with over 20,000 failed payments per day reported having lost customers as a result. In addition, failed payments had the biggest impact on customer service, with 37% of organizations reporting a severe impact and nearly 50% indicating some effect.

“Tangible costs such as fees and labor might be easier to measure, but the intangibles – 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,” Sahota added.

It’s hard to understand and irresponsible that financial institutions aren’t doing more to solve the failed payments problem. Senior bank executives, boards of directors, bank shareholders, and financial institution customers should all be upset. Maybe this report will serve as an additional wake-up call?

You can read more of the 2021 global study True Cost of Failed Payments by Accuity, A LexisNexis Risk Solutions Company, here.