Financial industries are particularly vulnerable to payment failures

By Puja Sharma

In 2020, failed payments are estimated to cost the global economy $118.5 billion in fees, labor, and lost business, according to LexisNexis Risk Solutions.

This is a major concern, but one that can lead to a discussion regarding banks, financial institutions (FI), and FinTech tolerance of failed payments. Airlines and outbound travel agents risk losing £5.45bn from UK consumers this year due to failed payments

Sarkis Akmakjian, senior director of product management at LexisNexis Risk Solutions, in interaction with PYMNTS explained, that institutions deem tolerance as a “cost of doing business,” comparing the realistic approach over perfection. However, it is critical to consider the percentage of tolerance in this context. The study reveals that the tipping point for action appears to be when the failed payment rate hits 5% or more. Eight out of 10 organizations indicate that they would actively implement changes to address the issue.

He further added that at this tipping point, it is essential for FS to look at their back payment failure and assess how the impact may or may not threaten the customer base. “The kind of action they take is looking into their technical back-end and front-end processes and seeing where they can improve.”

Immense challenge the UK travel sector faces from failed payment transactions

Fragmented payment systems across the travel sector, put under increasing pressure by the massive growth in digital payments, present a considerable challenge to airlines and travel agents. As a result of this, 13.4% of consumer payment transactions across the travel sector fail. Whilst most UK consumers will contact airlines and agents directly via phone following failed transactions, this complex process erodes travel providers’ profit margins and creates friction across the customer experience.

An analysis of data from the Office for National Statistics by BR-DGE has revealed the eye-watering figure equates to over three times the total passenger revenue of Easyjet (£1.49bn) in the first half of this year and nearly double Virgin Atlantic’s pre-pandemic revenue levels in 2019 (£2.9bn).

The travel sector’s legacy payment systems are ripe for innovation with travel businesses across the board grappling with a growing number of consumer payment preferences.

eCommerce is not too far behind

Alarmingly, the research found that one in three (32%) of the busiest UK e-commerce outlets were allowing customers to submit transactions with invalid card numbers. A further four in five (82%) of big online retailers still don’t offer Apple Pay or Google Pay to customers in the UK.

The ONS retail data released shows online retail spending in December 2021 was £2.16b. Yet, fragmented payment systems, put under increasing pressure by the massive growth in digital transactions, can result in failed transactions and unprocessed baskets, with both merchants and customers. If this was eradicated, December’s spending would have been £2.36bn, as per the IBS Intelligence report.

Key highlights

• In 2020, failed payments are estimated to cost the global economy $118.5 billion in fees, labor, and lost business
• As the travel sector approaches its busiest year, the research reveals the weight of failed payments on the sector’s financial performance
• Research shows an eye-watering 13.4% of consumer travel transactions fail due to fragmented systems
• One in three (32%) of the busiest UK e-commerce outlets were allowing customers to submit transactions with invalid card numbers.