Failed payments costing Europe’s banks EUR21bn a year – Misys

Despite the introduction of the single euro payments area this year, failed cross border transactions are costing European banks EUR21 billion a year, according to Misys.

Citing European banking industry estimates, the vendor says up to 41% – or as many as 574 million – cross-border commercial payments fail each year, which equates to around two million transactions each day.

Misys estimates the the average repair cost for each failed transaction at EUR36, putting the total bill at nearly EUR21 billion.

The benefits of Sepa are being eroded by poor processes and inadequate infrastructure, says the vendor. Cross-border payment failures are caused by a number of factors including weak payment initiation controls, poor process monitoring and problems during clearing and settlement. Misys says one of the prime causes is missing or incorrect reference data, which is responsible for 30% of all failures according to Swift.

“Little more than a third of cross-border commercial payments are completed using STP today,” says Barry Kislingbury, global product manager, payments and financial messaging, Misys. “Banks are left with the cost of putting these payments back on track – costs they are unable to pass on to customers.”

Kislingbury warns that with global trade volumes continuing to hit double-digit growth each year, the problem is going to get worse.

“Significant gains in STP rates can be achieved by utilising reference data within existing payment infrastructures without having to re-engineer a bank’s entire systems,” says Kislingbury. “Through targeted improvements in specific processes such as payments acquisition, validation and enrichment we can help banks to become more efficient and innovative and rise to the challenge of the new payments environment without undertaking major risk.”

Research released by LogicaCMG in April last year predicted that the cost to banks of dealing with failed Sepa transactions alone would hit EUR1.3 billion as banks and their customers grappled with the new payment instruments.

More recent research from e-payments firm Fundtech found that almost half of European banks expect it to take over five years to replace payments-related revenue lost following the introduction of Sepa. Around 13% of banks said they will never be able to recover the lost revenue.