Mind the Gap: Processing Fees Are Just the Tip of the (Payment Cost) Iceberg

If you think your credit union’s payment acceptance costs begin and end with processing fees, PayNearMe CRO Mike Kaplan has news for you: you’re only looking at the tip of a very expensive iceberg.

In a recent chat with The Credit Union Connection podcast host, Sarah Snell Cooke, Kaplan broke down PayNearMe’s latest report, The Payment Experience Gap. The big takeaway? For every $1.20 spent on actual transaction processing, another $6.02 gets swallowed up by friction, member support, and back-office cleanup.

That means an eye-watering 80% of total payment costs—roughly $100 billion industry-wide—hides below the surface. On a typical $640 payment, total acceptance costs actually average $7.22.

Winning isn’t about shaving a fraction of a cent off interchange; it’s about Payment Experience Management (PayXM)—smoothing out the full journey across self-service, agent support, and ops recovery.

Looking for a 90-day quick win? Audit your call center to see how many contacts stem from basic payment hiccups, and dig into the root causes behind your ACH return rates.

Sarah Snell Cooke: Hello and welcome. I am, of course, Sarah Snell Cooke, your host here at the Credit Union Connection. I’m joined today by Mike Kaplan. Welcome.

Mike Kaplan: Hi, Sarah. How are you doing?

Sarah Snell Cooke: I’m excellent. How are you?

Mike Kaplan: I’m doing well, thank you.

Sarah Snell Cooke: Now, Mike is the CRO, chief revenue officer, at PayNearMe. Why don’t you tell us a little bit more about yourself and the company?

Mike Kaplan: Yeah, great. Thanks for having us. PayNearMe is a payment experience management company. Payment experience management is the discipline of owning and continuously improving the entire end-to-end payment journey for our clients and their customers.

We do that through a combination of enterprise workflow software and licensed money movement services that accelerates the collection of consumer receivables while lowering the total cost of acceptance. We’ve been in business for a little over 17 years, and we move more than $50 billion a year in annual payment volume, and have over 20,000 businesses that use our PayXM platform.

From a focus perspective, we focus primarily on what we broadly call the bill pay space, but within bill pay, it’s things like lending, credit unions (obviously a big focus of ours), tolling, and spaces like that. So that’s us. That’s what we do.

Sarah Snell Cooke: Cool. You all put out this research, The Payment Experience Gap: Quantifying Total Cost of Payment Acceptance, which of course is critical as we’re looking at potentially or entirely losing some interchange income. Looking to make this a less expensive process is certainly of importance. What was the impetus for your research, and was there something in the client base that you were seeing that you wanted to put into research?

Mike Kaplan: Yeah. The reason we did the research is we’ve known for a really long time when we talk to our clients that people are always really focused on what the actual cost of processing a payment is, right?

They’re looking at the percentage of interchange that they’re paying or what it’s costing them to do ACHs. That’s an important part, obviously, of the cost of accepting a payment. But what we’ve known for a really long time is that’s the smallest part, right?

When payments go right, they’re easy. But when they go wrong or there are challenges, that’s when things really get expensive. What we wanted to do was quantify the difference between what the transaction cost was and the actual total cost of accepting that payment. That was our goal, and we wanted to measure that gap.

Our strong belief is that gap is caused by poor payment experiences, right? That’s why we call it the payment experience gap. If you have better payment experiences, you’ll have fewer challenges with your payments, and your total cost of acceptance will come down. We really knew it existed, but we wanted to actually put real numbers against it. So that’s why we did the research.

Sarah Snell Cooke: Yeah. So speaking of real numbers, the headline that comes out of this is that for every $1.20 spent processing a payment, another $6 and change goes to everything required to actually complete it. What is “everything else,” and what is the part that nobody has really mapped out of all these expenses?

Mike Kaplan: Yeah, I think you nailed it, right? So 80% of the payment acceptance cost lives outside of the actual transaction cost itself, right? And that represents about $100 billion. In the bill paying industry alone, we estimate that’s about $100 billion in cost that is going outside of just the transaction, right?

The methodology we used, we grounded it in 17 years of experience helping organizations manage bill payment at scale, right? Where possible, we aggregated operational benchmarks derived from real client payment activity that we saw, and then we augmented that with reputable third-party industry research.

Then we looked at the buckets of cost, and we broke them down into three real buckets of cost, right? The first was the transaction fee itself, right? If you take all of your transaction fees across all the different ways that you could make a payment—ACH, debit card, credit cards, digital wallets, cash—we figured across a payment base that represents about $1.20 for an average payment of about $640.

Then we looked at the impact of customer experience. What’s the impact when a customer goes to the website and they can’t get through the payment flow? What impact does that have? That delays the payment. What is the cost of a delayed payment or a slightly late payment? Keep in mind, we didn’t look at the impact of a truly delinquent payment; we didn’t get into collections costs. We really tried to focus on when somebody’s late or somebody can’t pay because they don’t have the right payment type.

They have money in their Venmo account, and they need to make a payment to their lender. They have to move that money over to their banking account so that they can pay with debit or ACH, and that’s going to take two days, which delays the payment two days, right? So things like that, payment abandonment, are what we were looking at. We estimated that comes in at about $1.31 per payment.

Then we went to what the support cost is, right? Now they have a problem. Not only are they a few days late, but now it requires them to pick up the phone. Maybe the payment got declined, or they have a question about their bill, or they want to have a conversation about late fees. So they pick up the phone and call in. What is that costing across the base? Based on our research, that’s about $2.70 a payment.

The last bucket of this is going to be the operational cost. When something goes wrong, you wind up with returns or chargebacks. What is that actually costing in terms of time and energy? The operational cost, we concluded, was about $2.01 per payment.

When you add that up, your total cost of payment acceptance for an average $640 transaction is about $7.22 a payment.

Sarah Snell Cooke: Okay, wow.

Mike Kaplan: So that’s what we did.

Sarah Snell Cooke: Is that true regardless of the size of the credit union? Or is there a difference?

Mike Kaplan: For the methodology, we looked at an average lender that had a portfolio taking about 500,000 payments a month. But the size is somewhat relative; as a percentage, it really should scale up and down. Depending on the level of self-service and how they manage phone calls and things like that, it could be higher or lower. So it’s an estimate.

Sarah Snell Cooke: Let’s sit over the shoulder of a member looking to make a payment to their credit union for their car loan or what have you. Where does that friction creep in? Where do the costs—what are some of the specifics of where the costs actually start adding up there, as you touched on earlier?

Mike Kaplan: Yeah, I think we’ve all experienced poor payment experiences, right? Where basically you’ve gone on to try and make a payment. I tell a story all the time where most people have three or four bills sitting on their desk waiting to be paid. My bills aren’t unpaid because I don’t have the money to pay them; they’re unpaid because the process of going through this is painful. So they sit and they wait, and they get delayed.

It’s little things: “Oh, I gotta log in and create an account. I forgot my password.” It’s things like that. Or, “I have a question about the bill, and I need to talk to somebody.” It’s all of these sort of things on the consumer experience side that drive you to be late with making that payment, right? And not having the right payment type.

Again, especially with newer generations, we’re finding that they don’t store money necessarily all in the same place like we do, right? Where we may have a bank account where all our money goes.

Sarah Snell Cooke: You’re calling us old.

Mike Kaplan: It’s actually very funny, because I have a bank account and most of my money goes in a bank account, but lately I’ve done a bunch of stuff where people have Venmoed me money, and now I have all of this money sitting in my Venmo account. But my ability to pay a bill with that is really hard, right? If I want to do that, I have to move the money to another account, and that’s challenging. So things like that get in the way on the customer experience side of things.

But we don’t just focus there; it’s other things. Take talk time for your support agents, right? So somebody finally has to call in. How do you make it efficient for the agent supporting them to get the person off the phone as fast as possible, answer their questions quickly, and not have to take the same information that the customer already entered two or three different times? How do we create systems that make them more efficient and ultimately reduce cost?

How do we provide tools that promote self-service, that allow the agents to promote self-service? “Oh, you called in this time. Let me provide you a link so that next time you don’t have to call me back. You can click on this link and self-serve, and that’ll make it faster and easier for you.” It makes it a better use of the agent’s time.

When we talk about payment experience management, those are the sorts of things that we’re talking about.

Sarah Snell Cooke: Yeah. For credit unions in particular that really pride themselves on excellent member service, the report also found that one in five of these payment interactions need human assistance, and that’s roughly $13.50 per contact.

Mike Kaplan: It’s really expensive.

Sarah Snell Cooke: Yes, it is. Is this due to friction, or is it somebody who actually wants to build that relationship with the credit union?

Mike Kaplan: Generally what we’re finding is most of it is friction. But for the credit union, experience is so important. A lot of the stuff that we’re doing for servicing credit unions involves members they may have acquired through indirect lending or something like that. The experience for credit unions is really important if you want to convert them into a more traditional member that’s doing much more with the credit union other than just paying back a loan. So we think that’s a really big part for credit unions.

There are lots of things that are going to drive up those calls. Friction is one of them. Poor payment flows are one of them. As I mentioned, not having the right tenders for them to pay, or when something goes wrong, not having clear, concise messaging about what went wrong. Those are things that will drive up calls, along with just generally not providing people with information that answers their questions and allows them to self-serve. That’s what’s driving most of those calls.

Sarah Snell Cooke: Right. On the operations side, ACH returns and recovery make up more than half of the operational costs. What should a lending executive understand about where those returns are coming from?

Mike Kaplan: The way we think about this is that returns, chargebacks, and things of that nature are oftentimes driven by people not paying with what’s optimal for them, right? They’re moving money around and trying to cover a balance and things of that nature. Putting people in a position to succeed is really important for keeping those chargebacks and returns low.

And then providing yourself with tools that help protect you as the lender or credit union makes you less susceptible to things like that. We have a client that we worked with where we were able to reduce their returns by 45% simply by putting in business rules that removed the option to pay in certain ways based on a client’s past payment performance, right? If you’ve been NSF a certain number of times within a certain period, you no longer have that as a payment option. You have to use a more guaranteed form of payment. Things like that can reduce the operational costs on the back end because now you’re getting fewer returns.

Sarah Snell Cooke: Right. You also introduce the idea of payment experience management, which is what you said your company does—treating it more like an entire journey rather than a single transaction. For a credit union executive hearing this phrase for the first time, what does that actually mean day to day?

Mike Kaplan: Yeah, it’s the end-to-end optimization of that payment journey—not just the customer experience, but all three buckets: consumer experience, support, and operations.

Lots of things start with consumer experience. How do you optimize that in a way that creates the least amount of friction? Because if you’re hitting friction there, that’s all going to flow downhill into the other buckets. Optimal payment experiences get your customers through their payment flows and payment journey with as little friction and as much self-service as possible.

The second bucket is: when somebody does require help, how do you streamline and make the experience for the agent and support professionals efficient? How do we make it so their time and energy is effectively used?

When something goes wrong—when there’s an exception or some sort of problem—the last bucket, the operations team, has the right set of tools and methodologies to deal with those quickly and hopefully reduce them in the future.

Combining those three is how we think about payment experience management. Ultimately, the goal would obviously be that your only cost is your transaction cost, right? That would be the only thing you’d ever have to worry about. That’s clearly the easiest one to quantify, and that would be a nirvana.

We’re not claiming there’s one thing you can go do to make those other costs go away, but if you start to approach the problem that way, identify where the problem lives and what it’s costing you, then you can actually start putting resources against solving that. That’s what our goal is.

Sarah Snell Cooke: Yeah. Now, not every credit union has the resources to immediately do a major overhaul.

Mike Kaplan: Sure.

Sarah Snell Cooke: If an executive wants to see something change, say, in the next 90 days, where would you point them first?

Mike Kaplan: You mean other than coming to talk to us, obviously?

Sarah Snell Cooke: Other than that, yeah.

Mike Kaplan: Working your way through the report, you can get a sense of where some of that low-hanging fruit is. Look at things like: how many calls coming into my call center are payment-related, and what’s driving those? That’s a relatively easy thing to be able to do. “How many calls is my call center servicing that have to do with payments? Okay, great. Is there a way that I can improve my payment experience, improve the data I’m giving to my customers, and improve that front-end journey so that I’m getting fewer calls in?” That’s where there’s a ton of cost.

Do things like looking at your returns. What’s driving up your return rates on the back end? Is it a high number of NSFs? Are you getting a lot of chargebacks? What’s going on, what is the profile of those customers, and are there things you can do to start helping to prevent that?

There are some real simple, practical, and very actionable things that you can start to do to chip away at some of these costs.

Sarah Snell Cooke: What do you think the payment experience is going to look like five years from now?

Mike Kaplan: Oh, that’s a great question. Obviously, if you’re talking about five years from now, you’re not allowed to not say it has been impacted by AI. I think that’s a rule in payments and technology generally!

I do think AI and agentic platforms will be heavily involved in helping to reduce some of the costs that we’re talking about and better improve the overall payment journey—not only the front-end journey, but making support professionals more effective and efficient, and dealing with a bunch of things on the operational side as well to lower costs there.

I think it will also improve the front-end customer journey. The smarter and more automated we can get to customize the payment experience to the individual consumer—which is something we believe AI can do—is going to drive fewer and fewer exceptions and put more and more people into what we would describe as the optimal payment experience for them. Starting there, you start to drive down costs because you start to have fewer issues. That’s my sense: AI will have a significant impact in all three of the buckets we’ve described.

Sarah Snell Cooke: For sure. Absolutely. That’s a safe bet. Now, I always allow guests to have a final thought. What would you like to leave our Credit Union audience with today?

Mike Kaplan: It’s recognizing that there’s real cost here, but also a real opportunity and a real business issue. It’s not just what you’re seeing on your statement from your processor. There’s real savings to be had by focusing on and managing the payment experience. If you have this problem, you need to start looking at ways to solve it.

Sarah Snell Cooke: Awesome. Thank you so much for your time today. I appreciate it, Mike.

Mike Kaplan: Thank you. Thanks for having us.