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The True Cost of Payments Now

  • By AFP Staff
  • Published: 4/18/2022
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In 2015, AFP first conducted a survey to help members understand the true cost of their payments by payment type, based on internal and external costs. In 2022, the survey was conducted again, underwritten by Corpay, to see how things had changed, and with over 300 responses, we were able to get a holistic and true price picture of the cost of payments. This article is a compilation of some of the highlights from the discussion that followed during a recent webinar, “Determining Your True Cost of Payments."

To start, we asked about respondents’ level of awareness of the cost of their payments. What we found is that the level of cost awareness is typically directly related to the cost of a particular payment type. So, for example, Fedwire and CHIPS have the highest cost awareness, and checks have the lowest, with real-time payments coming in at about 46%.  

In terms of cost by payment type, the pricing for checks has not significantly changed since 2015, and carries one of the lowest payment costs — credit card payments carry the lowest. Whereas the cost for wire payments has the highest payment cost at $10-15/wire, and therefore also one of the highest rates of certainty in terms of what that cost is. A new item in the 2022 survey is RTP clearing house-type payments, which came in with a considerable range of payment costs, between one cent and $2.50.  

Calculating the external costs of your transactions using bank fee data 

Headquartered in Chicago, Illinois, Healthcare Service Corporation (HCSC) is the fifth largest insurer in the U.S., serving Illinois, Montana, New Mexico, Oklahoma and Texas. The company generates approximately $64 billion in annual revenue, with about $130 billion in cash throughout — and clearly generates a lot of bank fees.  

HCSC is undergoing a payment modernization project within the company, looking at the future state of payments and overall services with its banking partners and how they process that within the corporation. The project is most likely going to take two to three years due to the complexity of the business and rewriting of their systems. “Treasury is working hard to get in front of and reposition ourselves to create a new foundation or proficiency within our organization to evaluate both our payment cost and overall cost and bank fees,” said David Deranek, CTP, director of Enterprise Treasury Operations, Health Care Services Corporation. 

Their first objective is to create a greater standardization that leads to increased speed accuracy and frequency of bank fee reviews. The size and scale of their current bank services necessitates increasing fiduciary controls over bank fees and related expenses. 

HCSC also wants the ability to audit its bank fees via automated means instead of the current manual and ad-hoc reviews, which are limited in scope and subject to the availability of staff resources to perform. “We'd have to have a person employed full-time doing this, and that's not really the best use of our time,” said Deranek. So, they’re trying to make the best use and leverage of automation. 

The company’s thinking is that identification of bank errors would be quicker and more accurate, which would lead to a higher probability and immediacy of recovering bank fees charged in error. Outside consultants who are periodically called in for full pricing reviews would be reduced or eliminated by routine maintenance and reviews they could conduct themselves. Ultimately, HCSC wants the ability to create enhanced trend analysis, and to lead in the identification of internal and external systemic issues and preferences, which would allow them to quickly adjust to things they read within their bank fees and are identifying within trend analyses.  

Their second objective is to create a proficiency of enhanced bank fee planning and strategy. “It's incumbent upon our team, with millions of dollars of bank fees and services, to manage and increase the visibility of bank fee trends, which would lead to a greater refinement of future fee budgets and spend,” said Deranek.  

HCSC also wants to enhance its share of wallet analysis for its partner banks, which would allow for greater pricing negotiation. What kind of platform they’ll have internally is uncertain for now, but they know it will require a review of their current partners. With this greater transactional volume pattern analysis could come a reinforcement of short-term forecasts as well. 

The frequency in the tracking of earnings, credit rates and float would be improved and allow for timely decisions related to their bank balances, especially if interest rates increase in the future. And lastly, aligning HCSC’s efforts to position for growth will provide greater flexibility and integration of additional bank fees and accounts within its banking structure.  

The third and last objective is that, with the increased business insight related to bank fees, they’ll be able to better position the business to pivot with banking partners and changing services. In the current environment, you have to consider whether, given some sort of disaster or cybersecurity event, you have the ability to pivot, to ensure that you're paying your members and providers on a timely basis. 

“We're hoping, as a treasury team, to investigate business trends, which could easily be identified by the data visualization and graphing of transactional volume, and share that with our business partners to help them understand what's going on in the business,” said Deranek.  

The heightened challenges in accounts payable 

What is the internal cost that AP staff in particular is facing when they're doing their B2B payments today? Digital payments are eliminating the paper processes and manual processes. If they’re trying to do this on their own, if they’re trying to move to an automated payment solution, a lot of time is being spent in the supplier enablement process — handling the changes that need to be made, storing banking information. There's a lot of work there with the prevention of ACH errors and what's involved in resolving those, processing stop payments, refunds and reissues, in addition to the normal supplier updates that need to be done in the vendor database. And then there are erroneous payments being sent; there's a cost involved in that. 

The payment automation journey has become more reactive because vendors now are saying, can you send it to me a different way? This was magnified over the last couple years because of the pandemic; vendors didn't want to have to send their staff in or go to the post office to get the checks, to go through that process of depositing checks and dealing with all that. Vendors want some kind of an electronic or digital payment: virtual cards, ACH, RTP, whatever it happens to be. 

What does that payment automation solution look like internally? How do we utilize our AP staff without increasing our AP staff? The problem is, we end up with multiple workflows — check flow, digital payment flow, and multiple reconciliations happening. And the workload can actually become more, particularly if you're trying to do this internally.  

“The last stage of that is when you get to what we call an optimized or an intelligent automation solution, where it's being driven as a single flow. Obviously, the goal is to get to one hundred percent of electronic or digital payments,” said Mark Penserini, vice president of Partner Management for Corpay. 

It's tough to do, but that's the goal: optimized payment automation. Resources are stretched. They've been stretched a lot more over the last couple years as we’ve had to support remote work staff and move away from our normal processes. There's a lot of additional work involved in those workflows, particularly when trying to do this internally, including supplier relationships, updating vendor data, customers using different payment methods with reconciliations that need to be done. 

What does that process look like? And what's the cost for doing that? You can calculate the hourly rate of your AP staff having to do that same thing down the line. Take ACH errors for example; they’re probably 1% of payments. It's not a big number, but when we start to look at the total number of payments and the average time to correct an ACH error, we’re probably looking at 45 minutes. So again, multiply that by the hourly rate of the individuals that are having to do that in your office. With an AP process and an AP staff, you can't schedule this. So, when you take into account the stopping and starting AP staff has to deal with, those numbers are actually probably a lot higher than this.  

Want to know more about payments? Check out the full webinar, as well as these resources from AFP Learn.  

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