$118.5 billion lost in fees due to failed payments in 2020

Failed payments inflicted a cost of $118.5 billion in fees upon the global economy in 2020, according to new data from Accuity, a LexisNexis Risk Solutions company.

The research defined failed payments as those that are rejected by a beneficiary bank or an intermediary bank in the payment flow. Several scenarios can result in failed payments, including having inaccurate or incomplete information, data entry issues due to human error or poor reference data and validation tools.

Accuity found that the costs of failed payments varied widely throughout different regions, depending on the type of organisation. In EMEA, the total cost of failed payments was $41.1 billion; in the Americas, it totalled $33.7 billion; meanwhile, APAC saw the highest costs at $43.7 billion.

Banks spent on average approximately $360,000 in 2020 on failed payments — which includes all fees, labour and costs related to customer attrition — whereas the average corporate firm spent just over $200,000.

Key themes that emerged from the findings include:

Payment failures cost more than just money — 80% of organisations with over 20,000 failed payments per day reported having lost customers as a result. Failed payments have the most significant impact on customer service, with 37% of organisations 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 organisations 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 organisations found reducing manual processes extremely challenging. Manual processes introduce human error and slow down the payment process, making it less efficient.

"From our research, we found that while organisations 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," says Accuity global head of KYC and payments product management Dalbir Sahota.

"Tangible costs such as fees and labor might be easier to measure, but the intangible - including customer relationships - can be more difficult to repair," Sahota continues.

"The payments market is fiercely competitive, so it is vital for organisations to take greater measures to improve their payments data to reduce their failed payment rate.