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New research reveals UK businesses are sleepwalking into a hidden payments crisis

Modulr By Modulr on 1 December 2020   •   7 mins read
<span id="hs_cos_wrapper_name" class="hs_cos_wrapper hs_cos_wrapper_meta_field hs_cos_wrapper_type_text" style="" data-hs-cos-general-type="meta_field" data-hs-cos-type="text" >New research reveals UK businesses are sleepwalking into a hidden payments crisis</span>

Findings at a glance

  • Payment processes cost businesses a huge £1.5m on average (or 12% of Opex) with costs spiralling due to manual processes - the most cited cost
  • Two-thirds (64%) of businesses expect these costs to increase over the next two years; with this financial burden having a direct impact on customer experience
  • 62% of payment professionals now believe the hidden costs of payment processes actually outweigh the hard costs and could boost commercial performance by +14% if eliminated

London, UK: 27th of October, 2020.

Research published today has identified the current payments dilemma UK businesses are facing. Businesses are caught between the need to reduce operational costs in harsh economic conditions, while continuing to meet rising customer expectation. The research also reveals that the hidden costs of payment process will have an exponentially greater impact on the wider business if left untreated.

A major new independent study of 200 payments decision makers in employment and payroll services, travel, traditional and digital banking and lending and fintech businesses across the UK has revealed the challenges faced when it comes to payment strategy in 2020, which adds to the impact and cost of the COVID-19 crisis.

The research, commissioned by Modulr and carried out by research agency LoudHouse and thinktank TechPros, explores the rising costs of the payment process and its hidden impact on the wider business, and benefits from the commentary of professionals invited to speak on the subject of the research (see below).

UK businesses are spending an average of £1.5m a year in costs attached to payments and, as the UK enters the worst recession on record, this is money they cannot afford to lose to unnecessarily inefficient processes. The payments process now represents a huge 12% of a business’s total operational expenditure, with two-thirds (64%) of all businesses expecting the cost of payment processing to increase over the next two years.

67% believe the way they process, and service payments has a direct impact on their customer experience. In fact, 62% of respondents believe the hidden costs of poor payments outweighs the hard costs. This indicates that a poor payments strategy is no longer something business leaders can ignore as it now has a far greater and unseen impact on wider business mechanics.

The top three hidden costs attached to inefficient payment processes was ‘impact on customer experience/satisfaction’ (38%), ‘influence on relationships with other teams and departments (35%) and ‘impact on competitor differentiation’ (31%).

This suggests there is widespread consensus that getting payment operations right, directly creates performance boosts elsewhere in the business. When asked to estimate as a percentage the business performance boost received if hidden payment inefficiencies were resolved, the average margin for improvement was +14%, with traditional banking the sector most likely (31%) to predict a performance gain greater than +15%.

It also reinforces the critical role infrastructural FinTechs will play in building business efficiency for the next normal. Infrastructural FinTechs, like Modulr, build the ‘tech behind the tech’ that delivers the underlying payments technology for businesses by providing fast, cost effective and efficient alternatives that are accessible and relevant to SMEs and enterprise alike.

The industry reacts to the hidden cost of payments study

(Full commentary can be found in the research)

Sulabh Agarwal, Managing Director and Global Payments Lead at Accenture, comments: “The first reaction when revenue goes down for high fixed cost businesses is that the costs need to come down, to keep the business afloat and keep the cashflow going. The more mature organisations, though, are looking at what has changed with the customers – their buying habits have changed, their needs and requirements have changed. And that clearly has an impact on what can be offered and be made relevant to them.”

Michael Rennie, Chief Digital Officer, Cynergy Bank, comments: “At Cynergy Bank, there is a huge focus on creating efficiencies. Ultimately, if we can invest in creating efficiencies, it not only reduces costs for us but more importantly, allows us to deliver what our customers need, when they need it.  This could be providing quicker lending decisions or access to finance, enabling our customers to meet their goals for their businesses.”

Paul Sweetingham, Global Solution Leader: Banking & CX at DXC Technology, comments: “The focus needs to be more on the customer rather than internal operational efficiencies and improvements. Obviously, it’s really important to lower costs. But sometimes I feel there’s a danger in too much internalisation of cost reduction. Optimising process automation, we need to ensure we’ve always got customer needs in mind.”

Janis Legler, Chief Product Officer at bitcoin banking app, Mode, comments:

“If you’re a financial services company, it’s not that easy to just partner with an up-and-coming backend service provider or just start a digital transformation project. If you don't have the technology at your core, it will be difficult going forward. We work with many merchants and a lot of them tell us about the ‘hidden inefficiencies’. These result from working with incumbent payment players, which has a knock-on effect on other departments such as operations and compliance.”

What’s clear is that by not shedding legacy technology and shoring up operational efficiency, UK businesses are following an increasingly risky strategy, and one which will have an exponentially greater impact on the wider business if left untreated. Particularly when this widespread failure to act concerns the customer experiences that sit at the very heart of a proposition – the payments.

Myles Stephenson, CEO of Modulr comments on the findings: “A poor payment strategy is not just inefficient, it can have a significant and hidden impact on bottom line performance and customer satisfaction. As we enter into one of the worst recessions on record, businesses must plug any holes in their boat to avoid sinking - and for many this includes their payment operations.

“In the face of increasing amounts of digital payments, and a tough economic environment, UK businesses must ensure they have a robust payments strategy if they are to be in the strongest position to move into the next normal with confidence. This strategy needs to place new technology at the centre of how they operate and receive payments, addressing the hidden inefficiencies that can have a big impact on a businesses’ bottom line and commercial performance.”

The full research is available now. To receive a copy relevant to your industry, register your interest here.




About the research

The statistics quoted in this press release are drawn from the quantitative data resulting from a survey of 200 business professionals carried out in July/August 2020, across employment services, travel, credit unions, building societies, traditional retail banking, digital retail banking, lending services and fintech. The respondents included CEOs (20.5%), Operations (18.5%), Payments (11%), Product (5%), Finance (24%) and IT (21%). Business headcount ranged from 50-100 (12.5%), 101-150 (18.5%), 151-250 (19%), 251-500 (10.5%), 501-1000 (14.5%) and 1000+ (25%).

The full research contains the commentary of leading business professionals - from the same industries as specified above - who were invited to speak on the topic of the research and share their experience of managing the hard and hidden costs of their payment processes. The commentators did not participate in the study.

Modulr commissioned the research agency LoudHouse, and the London-based thinktank TechPros to perform the research and commentary.

The full research is available now.


About Modulr

Modulr is the Payments as a Service API platform for digital businesses. It integrates into any product or system. Modulr’s new type of payment accounts are built for businesses that need a faster, easier and more reliable way to move money. Businesses can automate payment flows, embed payments into their platforms and build entirely new payment products and services themselves. All managed in real-time, 24/7 from one API.

Modulr’s API makes it easy for businesses to streamline existing services, launch new products and scale more efficiently.

Modulr FS Europe Limited (638002) is authorised by the Central Bank of Ireland as an Electronic Money Institution.

Modulr Finance Limited (FRN 900699) is registered with the Financial Conduct Authority as an EMD Agent of Modulr FS Limited (FRN 900573). Modulr FS Limited is an Authorised Electronic Money Institution, regulated by the Financial Conduct Authority.

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