5 payment inefficiencies that are costing your bank: Lessons from Gen X

Beyond the visible $0.20 transaction fee lies a $20 reality: the true cost of payments is hiding in plain sight. Support calls, exception handling, manual reconciliation and payment friction multiply basic processing fees into significant expenses. The hidden inefficiencies in legacy payments systems are more than just costs—they’re costs that can be prevented with the right technology.

Research into loan repayment behaviors reveals a costly disconnect between perceived and actual payment expenses. Through the lens of Generation X (ages 45-60), let’s take a look at five hidden costs of payments and how to reduce related inefficiencies in your organization.

1) The Hidden Cost of Payment Friction

When Gen X borrowers encounter payment friction, they abandon digital channels for expensive alternatives that drive up operational costs. For example, while 71% attempt to use billers’ websites to make payments, many abandon the digital channel due to login frustration—42% cite password issues as their top payment barrier. This friction point forces Gen X customers to call customer support to resolve password issues or make a phone payment. In some cases, they rely on the most expensive payment channels: 20% pay by mail, 19% pay by phone and 11% pay in-person at branch locations.

Strategic Solution: Lower your total cost of payment acceptance by eliminating this type of payment friction. Personalized payment links sent via text or email, for example, can eliminate login and password problems by providing one-click access directly into a customer’s payment flow. One PayNearMe lending client implemented this solution and saw a 40% reduction in agent-led payments. Given each support call costs up to 80 times more than a self-service payment, turning what should be a $0.50 digital transaction into a $10 phone payment, eliminating this single point of friction can significantly reduce operational costs. By adopting personalized payment links, you don’t just eliminate login barriers—you empower borrowers to take control of their payment experience, reducing costs while enhancing loyalty.

2) The Hidden Cost of Limited Payment Options

Gen X, straddling both traditional and digital banking worlds, demonstrates why limited payment options drive up costs. Survey data reveals strong demand for payment variety among this segment of customers: PayPal (62% rate as important for loan repayment), Apple Pay (57%) and Venmo (52%). Additionally, 43% want the flexibility to use different payment types each billing cycle and 38% want to pay with stored wallet balances. Ignoring these preferences leads to delayed payments and increased collection costs, including a rise in customer service calls related to delinquencies. This need for payment choice is underscored by the 27% of Gen X customers who say not having their preferred payment methods available makes loan repayment difficult.

Strategic Solution: Implement alternative payment options that align with your customers’ payment preferences. By strategically expanding payment types, you can reduce late payments and costly collections. Look for a payments partner that enables you to integrate popular digital wallets, designs flexible payment scheduling, digitizes cash payments and sends customers personalized payment links for an easy tap-and-pay experience.

3) The Hidden Cost of Payment Scheduling Rigidity

Gen X’s complex financial responsibilities—the cost of child care and elder care, on top of managing the highest average debt load among all generations ($157,556)—demand payment scheduling flexibility that many financial institutions don’t provide. Survey data reveals 61% of Gen X customers want control over when their loans get paid and 37% worry about overdraft fees, reflecting the complexity of managing their bills. These needs are clearly reflected in this generation’s low autopay adoption rates—35% use it for only some loans and 14% avoid it entirely—which often leads to missed payments and increased collection costs.

Strategic Solution: Design a payment experience that incorporates flexible payment scheduling to give Gen X customers the control they require to keep up with their loan payments. When you enable your customers to align payment dates with their paydays, for example, they can significantly reduce late (or missed) payments.

4) The Hidden Cost of ACH Returns

While ACH is ranked as the most important payment type by 54% of Gen X customers, its hidden costs are significant. ACH payments appear cost-effective at just $0.20 per transaction but NSFs create cascading expenses. Each ACH return costs up to $5 and multiple retry attempts can push that expense to $15 or more per transaction. Add customer service intervention at $10 per call and a “low-cost” ACH transaction can balloon to more than $20.

Strategic Solution: Look for a modern payments platform that enables you to prevent returns by identifying customers with a history of NSFs and suggesting  more reliable payment options, a solution that can reduce your ACH return rate by up to 50% in as little as six months. When returns do occur, automated retry logic can help you recover payments efficiently—two automated retries can yield a 45% recovery rate without manual staff intervention.

5) The Hidden Cost of Manual Reconciliation

Gen X’s demand for payment variety creates reconciliation complexity that drives up operational costs. Survey data reveals the breadth of payment methods this generation considers important for loan repayment: bank account/ACH (ranked first by 54%), debit cards (ranked first or second by 74%), digital wallets are considered important or very important (Apple Pay 57%, Google Pay 51%), as are payment apps (PayPal 62%, Venmo 52%, Cash App Pay 51%) and cash at retail locations (47%).

With legacy payment systems, the cost of manual reconciliation grows with the addition of each payment type offered by a financial institution because each payment method generates a separate report, different settlement timeframes and unique exception categories.

Strategic Solution: Consider a modern payments platform that centralizes data across all payment types, automatically reconciles transactions (regardless of payment method), consolidates reporting and flags exceptions for quick resolution. This automation reduces the manual workload on accounting teams while maintaining accurate records across all payment types and channels.

The cost of inaction

With 82% of customers saying payment experience influences their choice of future lenders, financial institutions need to address these hidden costs now or watch them compound as payment expectations evolve.

While Gen X’s payment preferences reveal the depth of these operational inefficiencies, every customer segment experiences similar payment problems that need to be addressed. These friction points are likely to be even less tolerable for younger generations who expect instant, mobile-first solutions. Having grown up with one-click purchases and peer-to-peer payments, millennials and Gen Z customers often view traditional payment processes as unnecessarily complex and outdated. The opportunity isn’t just in reducing costs—it’s in designing a unique payment experience for every customer.

Michael Kaplan is EVP and Chief Revenue Officer at PayNearMe.