Introducing the study

UK businesses are sleepwalking into payment strategies that could put their survival at risk. As the economic conditions imposed by the Coronavirus endure, they are facing a quandary as to how to reduce the operational cost of their payment processes while still meeting customer needs. And, while the hard costs of operating payments are set to rise in the next 24 months, the greater concern for payment professionals in decision making roles is the hidden impact and cost of outdated payment processes.

These are the findings of a major new independent survey of 200 payment decision makers in traditional and digital retail banking and lending and fintech businesses across the UK. The research identified the challenges faced when it comes to payment strategy1. Senior professionals revealed how they were working internally to overcome the operational cost versus customer experience conundrum, while simultaneously eliminating the hidden effects of inefficient payment processes on other parts of the business.

This eBook combines the research survey findings, along with the commentary and recommendations of business leaders, to give you the insight you need to secure the future success of your organisation. With senior professionals revealing how they are working internally to overcome the operational cost versus customer experience conundrum, while simultaneously eliminating the hidden effects of inefficient payment processes on other parts of the business.

The research found that payment inefficiencies incur both hard and hidden costs for businesses. Small companies (with fewer than 250 employees) are spending an average £980,000 on their end-to-end payment processes, while larger companies (250 to 1000 employees) are spending £2.1m annually. And these hard costs are increasing, according to 64%.

Payment professionals recognise that the hidden costs associated with failure to update legacy payment processes are greater than the hard costs. Hidden costs of payment processes relate to business agility, customer, employee and supplier experience and ultimately the success of the business.

If the onset of the Coronavirus crisis has highlighted anything to the banking world, it’s that there are many advantages to investing in technology and having a digital infrastructure as responsive as your customer-facing experience; with many forward-thinking sectors having been able to respond to fast changing customer needs, while at the same time handling unprecedented and unplanned for impacts on their bottom line. Sulabh Agarwal, Managing Director and Global Payments Lead at global consultancy Accenture, said: “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.”

However, he adds: “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.”

David Renold, COO at global crypto exchange Coinbase: “Even in our very fast-paced industry, everything has been accelerating. We have seen two years’ growth in about six months, which has been great, but has brought a lot of challenges. And even so, we always focus on giving employees the best way to support the client.”

But, while digital technologies enabled companies to provide customer service in new ways during lockdown, these same businesses are failing to transform their digital strategies, with the biggest priority still being cost reduction (41%). 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, concludes the research. This is particularly true when this widespread failure to act concerns the customer experiences that sit at the very heart of a proposition – the payments.

The growing importance of a wide-ranging payment strategy

This follows an emerging trend in the investment and transformation of back office infrastructure. Just a few years ago, the payments process was a siloed burden with little strategic value and simply viewed as a business necessity. But new payment methods have since emerged, together with new entrants, from digitally transformed corporates to neobanks, who are offering disruptive solutions that have raised the bar when it comes to customer, supplier and employee expectation.

This is mostly characterised by an economy of instant experiences, instant information and instant services in both consumer and business lives – an Instant Economy. But digital, real-time and responsive business services are required to power the Instant Economy and, for a business to offer anything more than a nice front end experience, a reliable and fast digital payments solution must be at the heart of the product or service infrastructure.

As Michael Rennie, Chief Digital Officer at business bank, Cynergy Bank, put it: “In this day and age, it's all about being ‘on demand’. If waiting times are too long, people just move on to another bank. In order for us to drive our revenue, we have to focus on addressing those internal efficiencies and that's exactly what we're doing in the course of our digital transformation.”

The hard and hidden costs of payment inefficiency

The research found that, of those businesses that have very clear metrics relating to payment costs, the average operational expenditure on payments is £1,416,327 or, separately measured as 12% of overall Opex.

And, payment processes are expected to become more expensive – two thirds of respondents expect costs to increase over the next two years. Market trends and company growth were cited as the main contributing factors, alongside staff and IT costs. Business leaders were less concerned about the possibility of supplier price hikes.

When it comes to the hard costs attached to payment processes, the biggest, as reported by 44% of respondents in the traditional banking sector, was incurred by the hours spent on manual processes. This compares with 39% of digital banking leaders mentioning time spent on manual processes as their biggest contributor to hard costs, 30% in the employment sector and 40% in travel. For many, this was a bigger cost than the processing fees and revenue share costs associated with card processing. It is clear that the cost of internal admin and compensating for rudimentary legacy functionality is a major issue. The good news is that businesses can drive these costs right down.

But, as well as hard costs, the research found that payment inefficiencies also result in hidden costs for businesses and 60% of banking organisations, including digital and traditional banks and lenders, say these actually outweigh the hard costs. The hidden costs of payment processes relate to business agility, customer, employee and supplier experience and ultimately the success of the business.

For example, the top contributing factor to hard cost – team hours spent on manual processes – also comes with hidden costs. The hard cost is the salary paid against the quantifiable hours spent on the manual process, while the hidden cost is where those hours could have been better spent. The top hidden cost was the impact those hours could have had on customer experience and satisfaction (38%), followed by interdepartmental coordination, competitor differentiation, brand reputation, business agility and team morale.

There is a clear temptation for businesses to delay planned payment strategy enhancements based purely on the hard costs of doing so. But this is a highly risky approach. As is failing to acknowledge the rising threat of hidden inefficiencies in their payment processes and letting them go untreated, especially as the rewards for addressing them are substantial. On average, business leaders expect that overcoming hidden costs could lead to a business performance improvement of 14%. Smaller businesses said it would boost their overall business performance by 11.65%. Larger businesses expect to see a performance boost of 16.11%. In the digital retail banking, lending and FinTech sector, a quarter of all businesses (27%) expected to see a performance improvement greater than 15%, while in the traditional banking sector, almost a third (31%) expected to see a performance improvement greater than 15%.

Operational cost cutting alone will not balance the books

While there is clearly a recognition of the importance of payments and the impact of the hidden costs of payment inefficiency – with two thirds of respondents (64%) agreeing that payment efficiency is indicative of how a business is run and 67% agreeing that how payments are processed and serviced has a direct impact on customer experience - too many businesses (41%) remain focused on cutting hard, operational costs, despite widespread recognition that hidden costs are a greater threat to success.

Larger companies, with more than 250 employees, are much more likely to mention reducing operational costs as a strategic target (52%) than smaller companies. Only 24% of smaller companies are focused on reducing operational costs. Not surprisingly, traditional banks say they are primarily focussed on operational cost reduction (40%), whereas for digital banking that is less of a focus – more than a third (36%) cite operational cost reduction as a primary area of activity.

Lack of visibility of the true costs is the main sticking point. The cost, or perceived cost, of offering enhanced payment services has been a barrier to change. More than two thirds (69%) of respondents to the study think payment services cost management has become more important over the past year. Combined with the view that the hidden costs are primarily damaging customer experience, it makes payments a key yet complicated battleground to cut costs and differentiate within the same function.

Steven Cooper, CEO at private bank, Hoaresbank, said: “If the efficiency is about making life easier for the colleague and the customer, that’s great, but if the efficiency is just about taking cost out, then that’s less good. I hope to get both at the same time.”

Paul Sweetingham, Global Solution Leader: Banking & CX at DXC Technology, cautioned: “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.”

Automation and systems integration are key to addressing both digital transformation and achieving visibility of progress towards payment goals. Yet, many organisations are still using multiple, disconnected systems. According to Financial Director, “Today’s typical finance department is far from fully automated. CFOs use spreadsheets for an average of 2.24 hours per day. 52% of CFOs ranked accounting/finance software as the first or second highest driver of change in the next five years and 91% said that this software would change the accounting department for the better.” 2

Payments innovation – and the more efficient processes this brings – enables businesses to create new customer services, such as different payment models and automated payments. However, many businesses are not yet maximising the opportunity of payments innovation.

The good news is that the research finds that fixing the inefficiencies can also cut costs and improve the customer experience. In fact, the exercise of driving internal operational efficiencies should, in itself, be a customer experience exercise.

Afterall, CX is something that should be front of mind for overall business strategies; a priority for 42%, second only to the immediate priority of adjusting to the COVID-19 environment. Respondents in the travel sector, perhaps the sector hit hardest by the pandemic crisis, are most focussed on improving customer experience. By contrast, digital banking, which includes lenders and FinTechs, are most focussed on reducing operational risk (39%) achieving growth in their current markets (38%), and driving internal digital transformation (38%). Traditional banks cited reducing operational cost and reducing operational risk as their top strategic priorities (40% and 38%), beyond the immediate priority of adjusting to the COVID-19 environment (42%).

Michael Rennie, Chief Digital Officer at Cynergy Bank, said: “At Cynergy Bank, a huge focus is 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.”

And, as businesses are increasingly extending their customer experience management to employees and partners - with business leaders sharing concerns that payment inefficiency could impact internal relationships between teams and departments (35%) - the benefits of identifying and addressing the inefficiencies, cutting costs and improving the customer experience, really are far-reaching.

5 keys areas for UK businesses to drive payment efficiencies

Key themes emerged throughout the interviews around how business leaders in traditional and digital banking see companies overcoming the payments quandary and shoring up their process efficiencies. As such, business, operations and tech leaders should be looking to drive end-to-end payment process efficiencies in five key areas:

1 - Locate hidden payment process inefficiencies

Visibility is a key issue. Respondents across large (46%) and small businesses (47%) say they have very clear metrics directly related to payment process costs. Only 8% say that they don’t understand the costs involved. Yet, businesses know they could do better with improved visibility of costs. Both large and smaller companies cite ‘Lack of visibility for operational costs’ as the top challenge when it comes to achieving strategic goals around payment process and money services provision.

Digital banking companies, including lenders and FinTechs, identified ‘lack of visibility for operational cost’ as a challenge when it comes to increasing payment services revenue. 37% identify lack of visibility as the main issue they face, in comparison with all respondents who mentioned other issues such as lack of skills (25%) and constrained resources (also 25%) as secondary and tertiary challenges respectively. In contrast, traditional banks were more likely to consider senior leadership and vision as their major challenge.

When asked, 'What would be the perceived performance improvement (% improvement of your overall business performance) from addressing the hidden costs of payments to your business?’, around three quarters of companies of all sizes expect to see a productivity improvement between 6% and 35%, with traditional and digital banking the industries most likely to estimate performance boosts of greater than 15%. Yet, 38% of all respondents believe that it is hard to demonstrate the cost saving benefits to the business, and 34% report that there are internal disagreements about cost management priorities.

For many businesses, developing a cost model for current and projected payment process costs, both hard and hidden, is a top priority.


2 - Make payments key to stakeholder experience management

Customer, departmental and even supply chain partner experiences are increasingly intertwined. There is no doubt that customer experience is a top priority for payment services strategy, but enhancing the broader stakeholder experience is a close second, and certainly complements the former.

Businesses will be forced to meet the consumer’s growing awareness and expectation of instant payments, or risk losing customers. Q2 of 2020 saw 650 million payments processed by Faster Payments, a 10% increase on the amount processed in Q2 2019. This is despite the downturn in economic activity resulting from the pandemic. 2019 saw an increase of 19% in payments processed, compared with 2018.3

“What we are seeing over the last few months is the adoption of digital payments fundamentally growing,” says Paul Sweetingham at DXC Technology. “Frictionless payments will aid not only customer satisfaction and retention, but also drive further adoption of digital payment services.”

He adds, “Improvements in terms of the time it takes to release payments to the supply chain are really important in the current climate where cashflow and frictionless payments is really important to help businesses survive. I think there is still more work to be done there.”

Janis Legler, Chief Product officer at bitcoin banking app, Mode, said: “We are providing an easy to use gateway into crypto, at a moment when people have more time to look into new financial products like crypto currencies. And, once they want to buy, it’s very important for us that we provide them with a gateway.”

Steven Cooper describes a project at Hoaresbank to reduce a four-week customer loan approval process to four hours: “A lot of that is about changing the process, investing in that and digitising that. Some of that is getting information from companies like Experian. I will lose some operational cost but I'll add more cost elsewhere, because I'm investing in the technology, in the process, but it is about making the experience much, much better for the customer.”

Employee experience affects customer experience. So, payment services innovation must extend beyond customer touchpoints. Happy employees who feel they are working with effective and efficient payments systems will be best placed to enhance the customer experience. And, employees in commercial roles who have bought into the benefits of efficient payments will naturally want to extoll those benefits to customers.

Ron Pheasey, CEO at Marsden Building Society, said: “We engage our own CX consultants to support us on remapping all our customer journeys. And that’s not just those of the public, that’s the businesses as well. Getting that customer journey right is really important.”

Accenture analysis has found that by the end of this year, cross-functional integrated teams will deliver 80% of traditional finance services. Integrated business services teams will deliver services to employees, customers and suppliers, including the accounting and transaction processing typically performed by finance.4

As customer experience management evolves into a broader discipline of stakeholder experience management, including employees and supply chain partners, it will become more crucial than ever to include payment services experience.

3 - Integrate and automate to support payment innovation at speed

Payment innovation is driving a culture change, connecting previously siloed functions such as IT and finance. There is increasing integration of systems from CRM and ERP, into accounts and payments. The research tells us that payment processes is impacting nearly every department, affecting areas including customer experience, brand, leadership, business agility and ultimately, revenue. Integration enables new business models for paying suppliers and customers.

Automation is key to driving efficiency, replacing manual error-prone and time-consuming processes with real-time and responsive, digital ones. This is particularly the case when it comes to operational and payment processes.

Smaller companies are expecting more from automation, beyond straight through processing. 42% of smaller companies expect automation to cut the costs of payment processes, compared with 30% of large companies. Large companies are more interested in using their clout to negotiate better payment process terms with suppliers (45% of large companies expect to do this compared with 24% of smaller companies).

Yet, 52% of large companies say that team hours spent on payment processes was their biggest hard cost attached to payments, compared with 26% of smaller companies who share that view. This suggests that automation could contribute more to cutting the cost of payment processes in large companies.

Payment process automation is a key strategic priority for many businesses. Ron Pheasey, CEO of Marsden Building Society, said: “I think the biggest improvement we’ve seen in payments is in regard to authorisations; using technologies to get the business unit accountability to sign off. We don't rely on paper anymore; the process is now automated.”

John Quamina, Global Practice Partner Payments at global business solutions provider Wipro, said: “The main thing resulting from automation is that the bank can see the payments coming in and coming out and understand what they mean. They will be able to calculate the working capital, know what, who your clients are, and therefore offer you the best terms without human intervention.”

It is worth mentioning that implementing payments automation through a digitally responsive infrastructure goes beyond shoring up efficiencies but will rather create the framework within which the potential of payment big data can be realised.

He points out that the ISO 20022 payment standard will play a key role in driving payment services innovation: “ISO 20022 will be able to carry an awful lot of information about the underlying transaction of that payment. So, a lot of those accounting and finance transformation programmes of the past will be leapfrogged by the intelligence within the payment.”

For Janis Legler at Mode, integration is a priority: “We have a lot of customer accounts for our users. And we’ll also now be onboarding merchants, so we will be serving the whole ecosystem. For us at the moment, payments and loyalty are separated and fragmented and that's due to legacy infrastructure. We want to bring together payments and loyalty so that merchants can make a more tailored offering to consumers based on their payment history and behaviour, with everything interlinked, in one ecosystem.”

The initial efficiency benefits of payments automation are transforming many businesses. Beyond efficiency benefits, payments automation should also be the springboard to innovation with customer products and services, based on new payment models.

4 - The payments strategy is no longer a single stakeholder operation

Payments innovation is driving systems integration and creating a more collaborative stakeholder ecosystem. As all the C-level roles become increasingly focused on the customer experience, the Finance remit increasingly includes overall business operations and its associated risks and opportunities. The role is evolving beyond just accounting, tax liability and funding.

Accenture has responded to this evolution with a cross-functional reorganisation. Sulabh Agarwal, Managing Director and Global Payments Lead at Accenture says: “We have restructured as a next generation growth model, as we call it. Payments, which used to be siloed within Financial Services, is now a cross industry thing. My role has expanded to look at payment problems across all industries. So that’s clearly been a big change for us, and we thought it was the right change as we need to evolve with the market.”

Closer collaboration between senior leaders is key to driving efficiencies and enhancing customer experience.

5 - Innovate by adding finance and payments to vertical services

Companies with a vertical focus are well placed to innovate by offering new payment services. In many vertical sectors, software vendors are increasingly embedding financial services facilities, such as payments, into their technology platforms. Companies operating in individual vertical sectors, from banking to property, employment services or the travel industry, can then offer financial services to existing and new customers within their specific ecosystem.

Businesses already operating in the financial sector, such as traditional banks and lenders, might consider offering B2B payments as a service, enabling clients to access software to offer payment functionalities to their customers. Businesses in sectors that did not historically offer bespoke-to-sector financial services, such as those in employment, travel and property, can innovate by offering these alongside their core business.

Banks and building societies should act now and seize the competitive advantage

New revenue streams are there for the taking. Making payment processes more efficient results in a measurable competitive advantage. Forward thinkers in the banking sector who seek out and destroy hidden payment inefficiencies will not only reduce operational costs but will be rewarded tenfold from the ‘hidden’ beneficial knock-on effects it can have on stakeholder and customer experience.

Delaying payments transformation is an increasingly risky strategy. The price of not investing in payment process improvements is all too often an increasingly poor customer experience, especially in comparison to those who have put payments at the heart of their proposition.

Paul Sweetingham, Global Solution Leader: Banking & CX at DXC Technology, said: “Instant payments are going to be the new normal. There has been a slight delay in adoption for a few different reasons. One is acceptance, one is capability. And there is concern around fraud. But the industry is starting to implement the right regulations and approaches to overcome some of these challenges.”

The Instant Economy is increasingly becoming the benchmark for customer experience. When applying Instant Economy thinking to payments, it is not about making them happen quickly. That is just the start. It’s about building innovative products on top of a real-time and responsive, digital payments infrastructure.

Winners in the emerging Instant Economy will be businesses who innovate with instant experiences for customers, employees and suppliers. Innovation should begin with delivering efficient and excellent customer service. Front-runners who delight their stakeholders with payment services that add value, as well as meeting needs, will leave their rivals behind.

Janis Legler, Chief Product Officer at Mode: “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.”

“My advice would be to look to entirely new payment gateway solutions that are not based on legacy technology and commercial models of major card schemes.”

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. Once integrated, businesses can instantly set up as many accounts as they need. Getting paid, reconciling and making payments is fully automated and can be managed in real-time, 24/7 through their existing software applications.

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


The statistics quoted in this report 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%).

This report 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.

This report benefits from the input of more than 60 professionals who kindly shared their commentary, details of whom can be found here. Thank you to all who participated.

We would like to extend particular thanks to those we have cited directly in this eBook, along with the numerous others who contributed more general insights towards the bigger picture.

  • Sulabh Agarwal, Managing Director and Global Payments Lead at Accenture
  • Steven Cooper, CEO at Hoaresbank
  • Janis Legler, Chief Product Officer at Mode
  • Ron Pheasey, CEO at Marsden Building Society
  • John Quamina, Global Practice Partner Payments at Wipro
  • Michael Rennie, Chief Digital Officer at Cynergy Bank
  • David Renold, Chief Operations Officer at Coinbase
  • Paul Sweetingham, Global Solution Leader: Banking & CX at DXC Technology


  1. Commissioned by Modulr, Loudhouse, the independent research firm, carried out a quantitative survey of 200 finance decision makers in employment services, travel, traditional and digital retail banking and lending and fintech businesses across the UK in July 2020. In addition, in conjunction with Techpros, we carried out in-depth qualitative interviews with more than 60 professionals in the same sectors to gain a deeper insight into their experiences and opinions.
  2. State of the CFO role, The Financial Director 
  3. Faster Payments statistics, 2020 
  4. the Future of Finance, Accenture