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next 24 months, the greater concern for payment professionals in decision making roles is the hidden impact and cost of outdated payment processes.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 study1 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.

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.  

Yet, there is a widespread failure to act – 41% say that, although payment processes are strategically important to their business, their biggest priority is cost reduction.

It is a risky strategy for businesses to fail to acknowledge the rising threat of hidden inefficiencies in their payment processes and to let 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 travel sector, 21% expected to see a performance improvement greater than 15%.

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.

Tony Barker, Owner and CEO at digital solution provider for travel, Paxport, said: “Payment requirements are complicated in the travel industry. Old legacy systems are predominant. How can we transform that to meet the needs of businesses operating in the industry and also reduce costs, improve cashflow, and gain other benefits?”

The hidden costs of payment inefficiency

The research shows that the travel sector unsurprisingly stated that adjusting to COVID-19 was their main priority (60%) with enhancing customer experience (54%) and cutting operational costs (40%) close behind.

This follows an emerging trend in the investment and transformation of back office infrastructure. Just a few years ago, the payments process was a back-office 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.

However, the onset of the coronavirus crisis has highlighted the advantage of having a digital infrastructure as responsive as the customer-facing experience, as many sectors have been able to respond to fast changing customer needs, while at the same time handling unprecedented and unplanned for impacts on their bottom line. With the effects of coronavirus likely to endure for the foreseeable future, the travel sector would be wise to view operational economy gains, customer experience and business model adaptation as parts of the same picture. Sulabh Agarwal, Managing Director and Global Payments Lead at global consultancy, 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.”

Henrik Andersson, Finance Director Northern Region, at online travel agent TUI, said: “I'm in the travel industry. Now due to COVID, we had a lot of prepayments from customers for trips they couldn’t go on, which meant that we had a huge amount of reimbursements that we had to do. So, what we did was automate the whole reimbursement flow to the customer. Because otherwise we couldn't have handled it manually.”

Travel: Reeling from Coronavirus and facing a risky strategy

There is a clear temptation for businesses in the travel sector to delay planned payment strategy enhancements following a turbulent year and rocky time ahead. But this is a highly risky approach.

The cost, or perceived cost, of offering enhanced payment services has been a barrier to change. Almost two thirds (64%) of respondents to the study think the cost management of payment services has become more important over the past year. Of those businesses that have very clear metrics relating to payment costs, the average expenditure is £1,416,327, 12% of Opex. SMEs spent an average of £980,000 on the hard (quantifiable) costs of payment processes, while larger companies spent an average of £2.1m.

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. The travel industry broadly mirrored these views, with company growth and staff and IT costs the most cited reasons for the future rise in payment costs.

When it comes to the hard costs attached to payment processes, the biggest, as reported by 40% of respondents in the travel sector, was incurred by the hours spent on manual processes which was in line with the other sectors in the survey (see graph below). 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 down.


Hidden costs outweigh hard costs

There are also hidden costs attached to inefficient payment processes – and 64% of travel businesses say these actually outweigh the hard costs.

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.

Two thirds of respondents (64%) agree that payment efficiency is indicative of how a business is run and 63% of respondents in the travel sector agree that how payments are processed and serviced has a direct impact on customer experience. However, while there is clearly a recognition of the impact of the hidden costs of payment inefficiency, too many businesses remain focused on cutting hard, operational costs despite widespread recognition that hidden costs are a greater threat to success. As discussed elsewhere, when one factors rising hard costs into the equation, it leaves business professionals caught in a very real dilemma and sets the timer ticking.

There must be a clear link between achieving internal operational efficiencies and enhancing the customer experience. The exercise of driving internal operational efficiencies should be a customer experience exercise.

Blake Carroll Fulford-Brown, Head of Product at online travel agent, On The Beach, said: “We send 1.5 million people on holiday each year. Our primary focus is on Innovation, not efficiency. We look at the bigger customer problem and say if we can solve this problem, we'll deliver 10 times as many efficiencies.”

Increasingly, businesses are extending their customer experience management to employees and partners. Business leaders share concerns that payment inefficiency could impact internal relationships between teams and departments (35%).

On average, business leaders expect that overcoming hidden costs could result in a business performance improvement of 14%.


Travel businesses are too focused on cutting hard costs

While there is clearly a recognition of the importance of payments and the impact of the hidden costs of payment inefficiency, too many businesses are focused on cutting hard, operational costs as their top priority (41%), 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 (46%), whereas for digital banks that is less of a focus – over 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. Of those businesses that have very clear metrics relating to payment costs, the average expenditure is £1,416,327, 12% of Opex. SMEs spent an average of £980,000 on the hard (quantifiable) costs of payment processes, while larger companies spent an average of £2.1m. The cost, or perceived cost, of offering enhanced payment services has been a barrier to change. Over two thirds (69%) of respondents to the study think payment services cost management has become more important over the past year.

Automation and systems integration are key to addressing both digital transformation and achieving visibility of progress towards payment goals.

Paul Sweetingham, Global Solution Leader: Banking & CX at 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."

However, many businesses are not yet maximising the opportunity of payments innovation, with many organisations 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

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

Afterall, improving 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 the most focussed on adjusting to the Covid-19 environment, with 60% listing that as their top strategic business goal. But the travel sector also had the highest number of respondents listing ‘improving customer experience’ as a strategic goal – 54% compared with 35% in the banking sector. By contrast, digital banking, including lenders and FinTechs, are most focussed on achieving growth in their current markets.

Tony Barker, Owner and CEO, Paxport, said: “We are trying to turn travelling into more of a retail experience. Travelling has been operationally orientated. The industry is quite conservative. It’s hard work to try and convince the industry to change and see the opportunities because they’re so busy trying to fight for profit.”

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 travel leaders 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.

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 - 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.

Travel companies in particular, with their historic experience of managing sophisticated and integrated supply chains, are likely to be the frontrunners in implementing the integrated payment services that benefit all stakeholders.

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

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.

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, fit for the Instant Economy of instant services, information and experiences. This is particularly the case when it comes to operational and payment processes which have lagged behind their frontend technologies.

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 the travel sector. Tony Barker, Owner and CEO at 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 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.”

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.”

Henrik Andersson, Finance Director Northern Region at TUI, said: “If you want to be relevant for the customer, you need to be able to be flexible in what you offer, and how you offer it. And you can’t be flexible if you have a manual process. You need to have it automated 100%.”

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.

The travel sector has historically relied on white labelling or selling on third party financial services but are now following the wider trend of embedded payments, and able to offer bespoke-to-sector financial services. This creates a sector-specific (and improved) financial experience for customers and suppliers, and crucially makes the travel business stickier by owning more of the customer journey and improving reputation with industry suppliers.

Travel should act now and seize the infrastructural advantage

New revenue streams are there for the taking. Making payment processes more efficient results in a measurable competitive advantage. Forward thinkers in the travel 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.

Blake Carroll Fulford-Brown, Head of Product at On The Beach, said: “Payments is incredibly important in travel. Payments is often the USP between different companies.”

The Instant Economy is increasingly becoming the benchmark for customer experience. When applying Instant Economy thinking to payments, it is not about being able to make them happen quickly. That is just the start. It’s about building innovative products on top of a real-time, flexible 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, but will be brought home through the shoring up of their underlying payments infrastructure.

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 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, 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
  • Henrik Andersson, Finance Director Northern Region at TUI
  • Tony Barker, Owner and CEO at Paxport
  • Blake Carroll Fulford-Brown, Head of Product at On The Beach
  • John Quamina, Global Practice Partner Payments at Wipro
  • Michael Rennie, Chief Digital Officer at Cynergy Bank


  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