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next 24 months, the greater concern for payment professionals in decision making roles is the hidden impact and cost of outdated payment processes.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 travel, 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 highlighted anything to lenders, it’s that there are many advantages to investing in technology and having a digital infrastructure as responsive as your customer-facing experience. And though lockdown was a tough time for lenders, many forward-thinkers were 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 Accenture, says: “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.”

Mathew Megens, Founder and CEO of HyperJar, said: “It’s a cornerstone – without having a frictionless consumer experience people won’t experience our innovation. It's a matter of surviving as a company or not. It’s absolutely critical.”

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 41% saying that their biggest priority is still cost reduction. 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.

Payments are more important now than ever

According to the research, 68% of the lenders surveyed agree that payment services cost management has increased over the past year, and 64% of all businesses surveyed believe that payment efficiency in a business directly impacts brand perception and reputation.

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, puts 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 versus 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 39% of respondents in the lending sector, which also includes digital banks and FinTechs, was incurred by the hours spent on manual processes. This compares with 44% in traditional banking 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.


The biggest hard costs according to all respondents.

But, as well as hard costs, the research found that payment inefficiencies also result in hidden costs for businesses, and 71% of lenders, including digital banking and FinTech companies, 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 lending, digital banking and FinTech sector, 27% expected to see a performance improvement greater than 15%.

Businesses are too focused on cutting the hard costs in their bid for greater efficiency

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 three quarters (75%) of lenders, digital banking and FinTechs, 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 lenders, digital banks and FinTechs that is less of a focus – only 36% cite operational cost reduction as a primary area of activity and more focus prioritised on reducing operational risk (39%) and adjusting to COVID-19 (45%) in this sector.

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 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.

Paul Sweetingham, Global Solution Leader: Banking & CX at global IT services provider 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.”

Alastair Jones, Director of Technology Operations at P2P lender RateSetter, said: “We are a challenger, we are creating our own path. We’re looking to make users lives easier with automation and interconnectivity. But there’s a certain element of usability, which is the underlying bedrock of what has to be addressed first.”

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, fixing inefficiencies means cutting costs while simultaneously improving the customer experience. In fact, the exercise of driving internal operational efficiencies should itself be a customer experience exercise.

Michael Rennie, Chief Digital Officer at Cynergy Bank: “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.”

Afterall, CX is something that is front of mind for 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, lenders, including digital banks and FinTechs, are most focussed on reducing operational risk (39%) achieving growth in their current markets (38%), and driving internal digital transformation (38%).

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 key areas for UK businesses to drive payment efficiencies

Key themes emerged throughout the interviews around how business leaders in lending 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.

Lenders identified ‘lack of visibility for operational cost’ as a challenge when it comes to increasing payment services revenue (37%). This is in comparison with all respondents mentioning other issues such as lack of skills (25%) and constrained resources (25%) as secondary and tertiary challenges respectively.

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%. Yet, 38% 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 - Lenders should broaden their customer experience focus to wider stakeholders

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

Ryan Scoville, Director of Technology at global consumer lender Monedo, said: “We’re focusing on the part of the customer experience that is making it easy for them to pay. When you are doing a laser focus on your cashflow situation, you want to reduce any hurdles that a customer would have in making payments. We have been analysing the entire payment stream, adding new ways to pay, making the process more efficient. This clearly has benefits to both the consumer and the business.”

He explains: “As payments became more of a focus we took a deeper dive, and did some real analysis of payment methods and started looking at the customer journeys. Where were these payment methods failing? How were they failing? What was easy to use for the customers? We ran online survey surveys, specifically around payments. We’ve taken both an iterative approach to improving existing payment methods as well as exploring new opportunities to make it easier for customers to pay.”

Alastair Jones at RateSetter said: “We already use a great deal of third party APIs in our core products, to run credit checking, to handle payments. And we already interface with at least 20 third parties as part of the standard user journey for investment or borrowing."

He adds: “We are permanently on a journey to improve payments and processing for customers. Indeed, one of the projects is to parallelise payments, moving away from a serialised overnight settlement process, which will in turn deliver cash to customers faster.”

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.

Mathew Megens, Founder and CEO of HyperJar said: “Our customer support team are trained not just to answer questions, but also to elicit feedback so that after they fix the problem they say, ‘are you using this in a way that helps you save money?’ That is really working well for our customer support team that has multiple touch points every day with our users.”

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

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 that provide the technology behind the scenes. Tony Barker, Owner and CEO at digital solutions provider to travel, Paxport, said: “We’ve got to automate – we want our financial team to add value to the business rather than be bean counters for example. Our virtual card gives customers a number of benefits such as a better cash flow and also an additional revenue stream. Reconciliation is a key USP, to be able to follow a booking number and track the payments around that booking, a big reduction in bean counting activity!”

John Quamina, Global Practice Partner Payments at global business solutions 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.”

And 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.”

Michael Rennie, Chief Digital Officer at Cynergy Bank, is looking to drive innovation in partnership: “I’m looking to engage with FinTech, ideally to take care of all the payments there are. That’s customers making payments, payments to suppliers and salary payments. We’ve architected our digital transformation as a holistic view of all the systems together. Any transaction is logged centrally in our data store, so that we can execute from wherever we want to within our architecture.”

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 - Bring business leaders together

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 said: “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. Lenders in particular might look at how they can integrate with vertical-specific software, especially in accounting and ERM, to make their products stickier.

Lenders 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 digital retail banking, lending and FinTech sector who seek out and destroy hidden payment inefficiencies will not only reduce operational costs, the real value will come from seizing the competitive advantage that modernising the payments infrastructure will bring.

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.

Ryan Scoville, Director of Technology at Monedo, said: "As payments became more of a focus we took a deeper dive, and did some real analysis of payment methods and started looking at the customer journeys. Where were these payment methods failing? How were they failing? What was easy to use for the customers? We ran online surveys, specifically around payments. We've taken both an iterative approach to improving existing payment methods as well as exploring new opportunities to make it easier for customers to pay."

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.

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 insights to help shape this report, 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
  • Alastair Jones, Director Of Technology Operations at RateSetter
  • Mathew Megens, Founder and CEO of HyperJar
  • John Quamina, Global Practice Partner Payments at Wipro
  • Ryan Scoville, Director of Technology at Monedo
  • 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