The Cost of Payment Operations

Payment operations, at the highest level, are workflows a business uses to manage money movement. While payments themselves may seem somewhat straightforward—money sent and received—the processes and potential complications that surround moving funds are intricate. Indeed, the term “operations” is appropriate. Any company looking to move money successfully at scale must operate a host of systems and resources. For this reason, the cost of payment operations—especially in-house solutions—can potentially run high, with an even higher price for missteps.

The Cost (and Value) of Payment Operations: Why Spend

Businesses that move money need payment operations for two primary reasons.

First, moving money is a serious business. Because of this, effective payment ops warrant thoughtful investment. Say a company launches a new app that doesn’t involve payments and the “send” button stops working. Customers may be annoyed but many will understand and try again later—it’s common knowledge that bugs happen and tech breaks.

Consider the same app but suppose money movement is involved and the glitch includes the mishandling or loss of a customer’s money. That’s a different scenario entirely, one with much more gravity. Companies have a responsibility to get payment operations right because the alternative can lead directly to business failure precipitated by churn, irreparable brand damage, and even legal ramifications (more on this below).

Secondly, where money movement is concerned, challenges are both immediate and continuous. Complications with payments can arise almost at once when businesses introduce any degree of scale. As companies grow to mid-sized and enterprise levels, these processes have likely already begun to introduce strain and risk.

Unfortunately, these aren’t problems that go away—on the contrary, slowness, inefficiency, and/or shaky compliance where money movement is concerned only compounds with growth. Manual workflows, extensive human resources, copious software, and spreadsheets cobbled together will only hold up so long.

Additionally, payment operations aren’t a one-time set up. Successful payment operations require ongoing management, maintenance, reliability checks, and improvements. Teams need to upkeep their systems and also address any product gaps in a proactive way for the lifetime of a business. As we’ve seen, mixups are costly—just take Citibank and it’s mistaken (although finally resolved) wire transfer of $900 million to Revlon two years ago.

Breaking It Down: 4 Primary Payment Ops Costs

For many companies, the cost of payment ops can be grouped in four categories, with adjustments depending on whether a business is sitting in the flow of funds.

1. Personnel

No matter how a company manages money movement, people are a pivotal resource. For many businesses, team members managing payments span departments including product, engineering, operations, finance, treasury, and those who oversee bank partnerships and integrations.

It’s not uncommon for companies to address the intricacies of payments by simply adding more staff. And especially where manual number-crunching, batch processing, and data matching are concerned, this may not be the best investment of valuable resources (for these individuals or the company).

The human element in the cost of payment operations is additionally intensive for businesses that build solutions in-house. Based on client data, Modern Treasury estimates thousands of hours of developer time required upfront to create a money movement solution on par with ours. This data does not account for the need to build a compliance program or handle maintenance and operation—an investment of hundreds of hours per year.

2. Payment and Bank Fees

The fees involved with making and receiving payments at scale can add up. For the bulk of B2B payments, moving money over bank rails is significantly cheaper than other methods like cards. For this reason, according to the Federal Reserve, $750T per year moves over ACH and wires (vs. $4T moved via card). RTP entails a relatively low fee for the speed involved but has limited availability. FedNow will be a cheaper real-time option for moving money via banks when it launches next year.

In addition to standard fees based on payment rails, each company will have unique costs in this area. For one financial planning and services platform, based on public data, this portion of their payment operations expenses includes costs associated with processing customers’ transactions (including the cost of printing checks) and postage for mailing checks, in addition to processing costs for ACH, check, and cross-border wire transfers.

3. Technology and Infrastructure

Effective payment ops requires infrastructure that can support payments from start to finish. To this end, a company needs to either buy and manage tools, or build and maintain systems (or both), that can handle:

• Payment Initiation and receipt which includes the ability to handle the following file standards: NACHA, BA12, ISO20022, and MT940
• Returns and reversals which requires the following for ACH: return file parsing, reversal functionality, and the ability to initiate a return
• Counterparties including the ability to collect information, verify microdeposits, and ensure compliance with WEB debit regulations
• Automatic reconciliation and continuous accounting, including logic to reconcile the four file standards above and integrate with an ERP
• Virtual accounts and ledgers which includes integrating with a bank’s virtual accounts system and building a double-entry ledger
• Controls that include role-based access, audit logging capabilities, and approval workflows

For those looking to purchase rather than build, it’s possible to buy use-case-focused software that will automate portions of this process (payroll, as an example). Companies that choose to work with a third-party sender to address specific needs may reduce or eliminate certain operations costs.

For companies that want to leverage the advantages of third-party payments—increased revenue, better customer retention, and cost savings—by embedding payments into their product, it’s even more difficult to find a comprehensive technology solution. And in the case of both first- and third-party payments, each tool, process, and software required to move money introduces new risk.

However businesses bring it all together, the cost for payments tech can be substantial. Public filings of several payments companies suggest that they spend up to 12-14% of their total revenue on technology and development expenses. This range is independent of company size and indicates that scale doesn’t necessarily lessen the cost of payments technology.

4. Compliance and Risk Management

Investing in compliance and risk management is a business necessity—and compliance regulations apply to every company, whether directly (because they move money), indirectly (because they need bank underwriting), or both. Further, the cost (in time and money) spent building and maintaining compliance (including adherence related to BSA, AML, and KYC) can be high for a few reasons. Namely, (1) compliance is complex and not usually a core competency, and (2) companies often need to stitch together multiple tools, software, and staff resources, resulting in brittle systems prone to failure.

In addition to building a compliance program or completing bank due diligence, compliance is an ongoing necessity (and thus, cost).

Not only is compliance a legal requirement—the dangers of compliance failure are significant and potentially expensive. Case in point: in 2021, FinCEN issued $1.6B in fines to 55 companies and banks for money laundering. The cost of risk management is an investment in longevity: compliance scandals are not only expensive—they can damage brand reputation and trust beyond repair.

Choosing a Comprehensive Solution

A truly comprehensive discussion regarding the cost of payment operations should also include the potential ROI. Consider three primary cost-related benefits of adopting a solution like Modern Treasury.

Bring New Offerings To Market Faster. For companies preparing to launch new products, addressing payments requirements can take time. In addition to months of potential waiting on a green light from banking partners to the time required to build, assemble, organize, and/or test payments infrastructure, delays can inhibit growth. Luckily, Modern Treasury can dramatically shorten this timeline—check out Outdoorsy, an RV marketplace that went live in two days using an integration between our solution and Plaid.

Avoid Redundancy (i.e. Why Build Salesforce?). Most businesses wouldn’t try to build their own version of Salesforce—and yet many companies feel confident tackling payment operations on their own. Unfortunately, these same companies often realize (either quickly or with any degree of scale), how complicated a fast, effective, and secure process can be to establish and maintain.

Save on Opportunity Costs. Investing talent into building an in-house solution—and/or the managing a complicated and cumbersome process—comes at a cost. And the tradeoff involved in having your best and brightest dedicated to creating and maintaining a payment operations solution means less time for what these individuals could accomplish otherwise.

Ultimately, the cost of payment ops depends on how you choose to approach the business need for smooth, scalable money movement. We’d love to show you how Modern Treasury’s solution will exceed your expectations and enable your best results—please reach out anytime.