Evaluating the Cost of Payments

Could reducing your cost of processing payments be as simple as switching from checks to digital payouts? In Onbe’s recent webinar in partnership with Redbridge, we broke down the true costs of popular payment programs along with the steps to calculating what your businesses may be spending on B2P (business-to-person) transactions. View the on-demand webinar recording to follow along in real time or use the guide below to evaluate your payment costs and unlock cost-saving opportunities.

3 Kinds of Payment Costs

Whether making disbursements by check, ACH, wire transfer or instant digital payment, businesses incur payment processing costs across three categories:

• Payment processing fees – The core processing costs found in bank fee statements.
• Ancillary fees – Additional costs your bank charges for support related to the payment, including check reporting, check image storage and retrieval and fraud services.
• Soft costs – The in-house costs of managing your payment processes, including employee time, customer support and escheatment.

Estimating Your Total Cost of Payments

Wondering how much your business spends on disbursements? Grab your bank statement and follow these steps to calculate a high-level estimate for each payment method your business employs. We’ll use checks as an example, as they are one of the most common (and most expensive!) payment methods used for disbursements

Step 1: Isolate Check Costs

Analyze your statement to isolate line items related to checks. Look for keywords and phrases that indicate core processing fees, such as check printing, controlled disbursements, image capture and reconciliation.

Step 2: Identify Ancillary Fees

Dive a level deeper to identify the fees your bank charges for services related to the check, such as image storage, payee name verification and fraud handling. Search for keywords and phrases including fraud, exception, reporting, posting, payee name, pospay, image storage and H2H (host to host).

Step 3: Find the Total Cost

Add up the payment processing fees and ancillary fees identified in steps 2 and 3 to arrive at your total cost of checks.

Step 4: Sum the Volumes

Find and sum the check volume values. To ensure you count all volumes and avoid duplicates, look for keywords such as controlled disbursements or checks paid/posted. Not all banks use the same line-item description to indicate the number of checks your business writes, so you’ll need to figure out which term your bank employs before you can accurately identify and add up all the volume values.

Step 5: Calculate the Cost per Check

Divide the total cost of checks by the total volume of checks sent to determine how much your business pays per check.

Repeat steps 1 through 5 for each payment method your business uses. The process of calculating your payment costs will vary by payment type, as various payment methods incur different fees.

What About the Soft Costs of Processing Payments?

The cost per payment calculated above does not factor in soft costs, which in many cases can be far higher than the processing fees and ancillary costs. Paper checks that cost $3.00 each in bank fees can easily incur another $9.00 per check in postage and handling, customer service, escheatment, fraud mitigation and other in-house costs.

According to the Association for Financial Professionals (AFP), checks are especially vulnerable to fraud, creating added risk and expense. With 31% of consumers reporting that they have lost or accidentally thrown away a check, according to research by Onbe and NRG, checks also impose a steep unclaimed property burden. Switching to a modern solution with digital payment methods can help prevent fraud, increase payment delivery rates and reduce businesses’ administrative costs.

Determining When You’re Ready for a Payment Service Provider

Businesses can benefit from working with a payment service provider when they are experiencing one of more of the following:

• High operational costs
• Increased regulatory pressure
• The opportunity to improve the customer experience

Working with a provider can help determine the right mix of payment methods to reduce costs and minimize the risk and complexity of making disbursements at a high volume. A corporate payouts provider can also help your business create modern experiences with popular payment options that drive customer satisfaction and revenue, transforming B2P payments from a cost center to a profit center.

Ready to Learn More About Cost-Lowering Payment Strategies?

View the on-demand webinar “Calculating the Cost of Your Payment Program” or contact Onbe for guidance from one of our payments experts.