Banks Risk Drop in Profits From Payments Operations

Low percentage failure rates for payments processing are disguising a steady erosion in trading profits for banks’ payments operations, according to analysis of European banks by Compass Management Consulting. According to the study, although only 2-5% of payments typically fall out of straight-through processing (STP) and require manual intervention, these transactions can reduce trading profits by up to 25%. In one case, an operation handling 300,000 transactions a day generated 7,000 exceptions. Despite the relatively low 2.3% exceptions rate, 270 full-time equivalent staff (FTEs) were required for manual processing of these payments, each of which costs between £25 to £40 to handle. Compass estimates that 60% of exceptions that have to be investigated and settled manually could be fully automated. Yet detailed analysis of payment operations, showed that banks were managing to automate only 4% of the exceptions that could be processed electronically. Compass claims that changes in fees for payments in the single euro payments area (SEPA) in 2008, will put extra pressure on margins in many bank payment operations and bring the challenge of exceptions processing into sharper focus. Looking beyond cash payments, Compass observed an average of 20% of all transactions failing and requiring manual intervention. These 20% of transactions account for 80% of total back office costs.


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