Take action against failed payments eroding your business' profitability

With an average fee of USD 12 for rejected or repaired payments, the direct cost of failed payments can quickly erode profitability. LexisNexis® Risk Solutions shares tips on how to solve this problem.

Failed payments are estimated to cost the global economy a whopping USD 118.5 billion per year. They are a global issue that impacts businesses of all sizes, across all geographies, and a range of industries – from banking and financial services to telecommunications, energy, and ecommerce.

According to the True Impact of Failed Payments, a recent study by LexisNexis® Risk Solutions, 49% of organisations surveyed indicated that broken or failed payments have a severe impact on the cost to the business. More than 70% said they were not satisfied with their payment failure rate.

Growth in revenue from global payments is expected to reach USD 2.3 trillion by 2026, up from a reported USD 1.5 trillion in 2021. Failed payments are the dark cloud in the otherwise silver lining of revenue growth. No wonder that reducing failed payments and improving straight-through processing (STP) rates are ongoing priorities and among the top payments trends this year.

Payments can fail or be delayed for a number of reasons. Improper formatting, poor reference data, and the validation tools used can all cause a payment to be rejected by a beneficiary or intermediary bank within the payment flow. Missing or inaccurate bank beneficiary details is the most common cause for payment delays or failures, followed by issues with non-IBAN account numbers and bank name/SWIFT BICs.

Geography plays a role in payment failure rates as well, with some global payment routes more vulnerable than others. Cross-border payments from Europe to North America and from Latin America to North America have the highest rate of failure at nearly 60% for each route.

How payments data is accessed can also impact payment failure rates. For example, many organisations still rely on manual checks before sending a payment, which is time-consuming and error-prone. The LexisNexis® Risk Solutions study found that nearly 75% of organisations check bank beneficiary name and address details manually, and; 51% check non-IBAN account numbers manually.

The average global fee for rejected or repaired payments is USD 12, with larger companies typically facing higher fees. This direct cost quickly adds up as businesses can process thousands or hundreds of thousands of transactions per year.

Indirect costs from failed payments are a concern as well. They reach deep and broad into an organisation – increasing staff workload, challenging safe payment verification and fraud prevention, impacting customer relationships, and potentially compromising the company’s reputation.

Customers and suppliers have come to expect fast, frictionless payments. The ability to deliver a seamless experience can serve as a strong differentiator and a way to effectively compete in a crowded market. But, getting the customer experience wrong can be detrimental to business. 87% of organisations reported losing customers due to failed or delayed payments. And 47% reported that failed payments have a severe impact on customer retention.

Accuracy of payment details was ranked as the number one essential element for efficient processing by 40% of organisations, followed by speed of payment processing at 32%.

But achieving the optimal balance between accuracy and speed is a challenge – the average global straight-through processing rate for payments is a mere 26%. Although the rate varies somewhat by region, industry, and size of organisation, the low overall STP rates reflect the untapped potential to achieve greater end-to-end efficiencies.

Raising STP rates can best be accomplished with a combination of accurate, accessible payments data, and advanced payment tools. For example, the LexisNexis® Risk Solutions study shows that combining APIs, online lookup, and data files can boost STP rates to 31.8% compared with 23.1% for an online look-up tool alone or 25.7% for APIs.

Authorised push payment (APP) fraud – where a victim is tricked into making a real-time payment to a fraudster – is a growing concern worldwide. These scams account for 75% of all digital banking fraud based on dollar value, according to a report from Outseer. Losses to APP fraud are predicted to double to USD 5.25 billion by 2026.

By incorporating advanced API payments technologies, including safe payment verification tools that instantly verify customer-entered information, organisations can prevent APP fraud and ensure the payment is going to the true intended end recipient. These solutions work in the background, offering a frictionless process that does not weigh down operations with time-consuming manual lookup, added costs, and unnecessary delays that slow payments and test customer patience.

Payments efficiency is built on accuracy, speed, and security. Organisations that leverage API technology and the most up-to-date global payments data will be better positioned to deliver a superior customer experience, raise straight-through processing rates, and meet the operational challenges of a rapidly changing market.

Supercharge your payments processes today.

About Dalbir Sahota

Dalbir Sahota has over 15 years’ experience working in investment banking operations transformation covering the domains of client data, foreign exchange services, derivatives middle office and KYC/CLM. Dalbir is currently Senior Director of Product Management - Bankers Almanac Payments & FC KYC at LexisNexis® Risk Solutions. Instrumental in the delivery of new and existing products that help organizations detect and understand the regulatory and reputational risk of doing business with customers and counterparties.

About LexisNexis® Risk Solutions

LexisNexis® Risk Solutions harnesses the power of data and advanced analytics to provide insights that help businesses and governmental entities reduce risk and improve decisions to benefit people around the globe. We provide data and technology solutions for a wide range of industries including insurance, financial services, healthcare and government. Headquartered in metro Atlanta, Georgia, we have offices throughout the world and are part of RELX (LSE: REL/NYSE: RELX), a global provider of information-based analytics and decision tools for professional and business customers. For more information, please visit www.risk.lexisnexis.com and www.relx.com.