TRANSFORMATION: STRAIGHT-THROUGH PROCESSING
Failure is not an option With margins in banks’ payments businesses already under pressure, Accuity’s Dalbir Sahota and Tristan Blampied of Silicon Valley Bank UK, explore the impact of failed transactions and how to fix them The impact of the exponential shift to high-volume, low-value digital payments on banks’ balance sheets over the last few months has been revealed by stark new findings. The True Cost Of Failed Payments Report, based on a survey conducted in early 2021, features responses from more than 200 payments professionals across the banking, financial, fintech and corporate sectors in both established and emerging economies. It pins an eyewatering figure of $118.5billion on failed payments globally in 2020; the total hit incurred in fees, corrective labour and lost business. Regionally, that figure breaks down to $41.1billion in Europe, the Middle East and Africa (EMEA); $33.7billion in the Americas; and $43.7billion in Asia-Pacific (APAC). While the cost varied globally and by organisation, the average for banks was $360,000 each, and just over $200,000 for corporate businesses. The report defines a failed payment as one that is ‘rejected by a beneficiary or intermediary bank [for] reasons including inaccurate or incomplete information, data entry issues due to human error or poor reference data and validation tools’. The figures, compiled by Accuity, part of LexisNexis Risk Solutions, reveal how imperative it is for major institutions to grasp the digital nettle and re-orientate their payments businesses to achieve greater efficiency and increase products and services to compete with paytech
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challengers. But more alarming, perhaps, than the topline financial loss, is the impact of failed payments on customer retention – 60 per cent of institutions surveyed (rising to 80 per cent among those with more than 20,000 failed payments a day) said they had lost customers as a result. Accuity found that issues with account numbers caused a third of failed payments, with inaccurate beneficiary details making up another third. Manual processes also introduced human error and slowed down payment journeys. Yet, less than 50 per cent of institutions are actively doing something about it. More than a third of ‘payment data elements’ are still validated manually, and two-thirds of organisations find reducing manual processes ‘extremely challenging’. Dalbir Sahota, global head of KYC and payments product management for Accuity, which specialises in data analytics for risk management and decision-making, says the industry has yet to wake up to the profound impact of dire payments performance. “Most organisations do not fully understand the impact, both financially and from a customer retention standpoint,” she says. “Tangible costs like fees and labour might be relatively easy to measure, but the intangible damage, including customer relationships, can be harder to repair. “The payments market is fiercely competitive, so it is vital for organisations
to do more to improve their payments data and reduce failures.” Initiatives like the new ISO 20022 payments messaging standard, the European Payments Initiative (EPI) and the Single Euro Payments Area (SEPA) are all conspiring to help sort out issues with, particularly cross-border, payments efficiency. But, to reap the benefits of this, the report concludes banks have no time to waste in embracing the kinds of digital technology needed to support them. “The pandemic has increased customers’ expectations of their payments experience. There’s been an explosion of cashless, digital payments and, naturally, as growth happens in payments, there is also a growth in failed payments,” explains Sahota. Tristan Blampied, director of payments product management at Silicon Valley Bank UK, agrees.“Delay tolerance levels have gone down, so it’s necessary to look at every avenue to validate payments upfront to prevent this,” he says. Yet, as the Accuity survey shows, many financial and corporate institutions are still manually checking and administering payments. “And, where things are done manually, there’s always that chance of something going wrong,” says Sahota. “Automaton rates for pure domestic payments should be at least in the high 90s. If they’re not, there’s a problem,” continues Blampied. “Cross-border automation is lower and failure rates higher because there are more variables.”
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