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Could your corporate payments team be saving millions?

I’ve written a few times on this blog about disparate payments processes within large corporations and then the benefits associated with centralising and standardising that process.  One of the clear problems we see with this disparate, non-integrated approach is that the bank fees being paid in relation to payment services is much higher than it needs to be.  High levels of invalid payments and continuing usage of expensive settlement channels / payment methods creates unnecessary cost.  But given the challenge in correctly attributing bank fees, it can be difficult to get the insight needed on where all that cost is coming from. 

A 2013 survey conducted by Boston Consulting Group reported that transaction banking revenues represented 15% of corporate banking revenues, or $220 billion.  Now, transaction banking is not limited to payments, you have trade finance and receivables finance in there as well.  So payments don’t account for all of that $220 billion but a not insignificant percentage and so you might be asking, how is that possible?

One of the key returns associated with a payment factory implementation is reduced bank fees.  So, let’s go through a simple hypothetical exercise to see where that comes from.

Through some basic calculations, a very large multinational could save up to $10 million over five years, just on bank fees.  And that’s before all the other cost savings that can be achieved through rationalisation of people, infrastructure and bank connectivity.

On bank transaction fees
200 international payments per day at a low-end estimated payment cost of $20, when converted to a local payment cost of 5 cents, would result in a cost reduction of $1 million per year or $5 million over 5 years.

By centralising the payments process and therefore enabling all business units to hand over execution of the payment to the central team, a payment factory can eliminate the cost of international transfers by facilitating local payments.

Add in payment repair costs
Now, consider the payment repair fees that any banking partner can charge to correct an invalid payment instruction.  200 payment fix fees per day at $20 per fix fee also comes to $1 million a year or $5 million over 5 years.

Any payment factory implementation should be able to ensure that no invalid payments reach the bank.  Rather they would be corrected or worse case, intercepted by the platform. 

So, your corporate payments team might be sitting on $10 million worth of bank fee savings alone.  If you’ve ever considered the potential savings within your organisation, it could be worth a second look.

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Andrew Owens

Andrew Owens

SVP - Enterprise Payments

SunGard AvantGard

Member since

05 Feb 2013

Location

London

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21

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This post is from a series of posts in the group:

Payments strategies 2015-2020-2030

Payments systems visions, strategies, trends, pilots, forecasting, and planning for the short-, medium-, and far-term.


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