Failed cross-border payments cost banks USD $2.2 million

LexisNexis Risk Solutions has published research on the cost of failed cross-border payments for financial institutions. The study found that losses can reach about USD $2.2 million a year for institutions handling 10,000 such payments a day.

The findings are based on research by Datos Insights covering 150 Payments Executives at financial institutions in North America, Europe, the Middle East and APAC. It found that three-quarters of institutions lose up to USD $5 million a year in customer revenue because of failed payments, while 37% said each failed or delayed payment costs more than USD $20.

According to the research, institutions do not recover the full cost through fees. Firms typically collect between USD $11 and USD $15 for each failed transaction, leaving a gap between the operational cost and the amount recouped.

Processing gap

The study focused on straight-through processing, or STP, which measures how many payments are completed without manual intervention. Only 2% of financial institutions reported near-100% STP for cross-border payments, and just 9% said they achieve an STP rate above 95%.

Four in five institutions said they are not satisfied with their current STP rates. The research also found that one in 10 cross-border payments fails on the first attempt.

For a typical institution processing about 10,000 cross-border payments a day, a 95% STP rate still leaves 500 payments requiring intervention. Using an average cost of USD $12.10 per failed or delayed payment, that amounts to more than USD $6,000 a day in direct costs, or about USD $2.2 million a year.

In APAC, the reported cost of a failed or repaired payment was USD $12.05. On payment reliability, 77% of financial institutions in the region said their failure or delay rates were below 5%, ahead of North America at 69% but behind Europe at 92%.

The data also pointed to the causes of failure. Incorrect beneficiary information accounted for 21% of payment failures, while account number issues and incorrect bank details each caused about 15%.

This suggests that many problems stem from basic data errors rather than more complex system issues. Institutions that adopted payment data validation tools reported stronger outcomes, with two in five saying STP improved by more than 25%.

Customer impact

The financial effect is not limited to internal costs. One-third of financial institutions said they lose between 2% and 5% of customers because of failed payments, while 90% said strong STP rates help retain customers.

Operational pressure also rises when payments fail. Institutions may need teams to correct errors and manage exceptions, adding labour costs on top of the direct expense of each failed transaction.

Vijay Nagarajan, Director of Payments Efficiency at LexisNexis Risk Solutions, linked the issue to broader work on payment systems and message standards.

"Failed payments are a key efficiency focus for financial institutions that aim to drive straight-through processing and further introduce ISO20022 payment message structures within their systems," said Vijay Nagarajan, Director of Payments Efficiency, LexisNexis Risk Solutions.

"They cause financial loss, customer friction and operational re-work. The silver lining is that many are preventable. Better data, validation and screening can help identify issues earlier during payment initiation and enable straight-through, frictionless cross-border payments," Nagarajan said.

Regional picture

The study found wide regional variation beyond APAC, Europe and North America. Around two in five financial institutions in the Middle East reported failure or delay rates below 5%, compared with 26% in Latin America and 19% in Africa.

Robin LoGiudice, Strategic Advisor at Datos Insights, said the underlying causes were often identifiable in the payment data itself.

"Failed payments are often seen as an unavoidable consequence of cross-border payment complexity," said Robin LoGiudice, Strategic Advisor, Datos Insights.

"Our research shows that many failures are instead linked to identifiable issues with payment data, including beneficiary information, account numbers and bank details. Improving data quality and validation earlier in the payment journey gives financial institutions a clear opportunity to reduce failures, lower operational costs and improve the customer experience," LoGiudice said.

Nagarajan said the regional differences reflected variation in market structure and payment rules.

"These differences reflect regional and internal factors, including variations in clearing systems, local regulations, specific payment data requirements and a lack of regional market standardisation," Nagarajan said.

"Fragmented banking infrastructure, correspondent banking, additional compliance requirements and inconsistent payment data can create further friction, particularly in less standardised markets," he added.