By Ray Birch
SANTA CLARA, Calif.--For many credit unions, the cost of collecting an auto loan payment seems straightforward. There are ACH fees, debit card processing costs and other transaction charges that appear neatly on processor invoices and general ledgers.
But those visible expenses may represent only a fraction of what it actually costs to collect a payment.
According to new research from payments company PayNearMe, the larger—and often overlooked—expense begins after something goes wrong. A member forgets a password. A debit card is declined. An ACH payment is returned. Someone calls the contact center for help. Employees manually reconcile the payment, send reminders or attempt recovery. Individually those events seem routine. Collectively, they create what PayNearMe calls the "Payment Experience Gap"—the difference between the transaction fee institutions see and the true cost of getting paid.
For credit unions, where auto lending remains one of the industry's largest and most competitive businesses, the findings suggest institutions may be underestimating the operational cost of servicing loan portfolios—not because payment processing is expensive, but because the work surrounding payments is spread across departments that rarely measure those costs together.
"It's been our thesis for a long time that if you have a lousy payment experience, it's going to negatively impact your bottom line," Michael Kaplan, chief revenue officer at PayNearMe, told CUToday.info. "We really wanted to quantify it. We wanted to put numbers around all the different components of the payment journey and everything that can disrupt it."
The company analyzed what it describes as the complete payment lifecycle—from the moment a borrower intends to make a payment until the payment is completed or recovered—and concluded that the average payment costs far more than institutions typically recognize.
For a representative mid-sized lender processing 500,000 payments annually, PayNearMe estimates the visible transaction fee averages about $1.20. Once customer support, payment failures, operational work and payment friction are included, however, the total cost rises to approximately $7.22 per payment. In other words, roughly 83% of the total cost occurs outside the transaction itself, with more than $6 in additional expense hidden across customer service, operations and recovery functions.
Total Cost About Six Times Higher
"The transaction cost is relevant," Kaplan said. "But it's really a very small percentage of the overall cost of accepting payments. The total cost is about six times higher than the actual transaction fee.”
That hidden expense, he said, isn't necessarily showing up on any one department's budget.
"I think people categorize it differently," Kaplan said. "Somebody in procurement is looking at the cost of the transaction. They're probably not talking to the person running collections, or servicing, or the contact center. These costs exist across a lot of different areas of the organization, and they're frankly not that easy to measure."
The report argues that payment friction—not just payment processing—is the real driver of cost. A member who cannot remember login credentials, encounters confusing payment screens, experiences a declined payment or needs assistance completing a transaction may ultimately make the payment anyway. But before that happens, the institution may incur call center costs, manual intervention, delinquency servicing and back-office reconciliation.
Using internal payment data combined with third-party benchmarks, PayNearMe estimated that customer support alone accounts for approximately $2.70 per payment, while customer-experience friction contributes another $1.31 and operational activities—including ACH returns, chargebacks, reconciliation and payment recovery—add roughly $2.01. Transaction processing itself accounts for just $1.20.
Kaplan stressed the analysis deliberately excluded long-term collections, charge-offs and severely delinquent accounts.
"We didn't include severely delinquent payments, long-term collections or write-offs," he said. "These are really the costs around the average customer making a payment and having relatively basic issues getting that payment through. We think the assumptions are reasonable and directionally accurate based on the payment data we've accumulated over 17 years."
For credit unions, the findings may be especially relevant as indirect auto lending continues to expand and members increasingly expect frictionless digital experiences similar to those offered by retailers and technology companies.
Touchpoint In Member Relationship
The monthly payment itself has become another touchpoint in the member relationship.
Credit unions frequently compete on loan rates and personalized service, but Kaplan argues the payment experience has become equally important. A borrower who repeatedly struggles to complete payments may generate higher servicing costs while becoming less satisfied with the institution, even if the loan itself was competitively priced.
The report estimates that approximately 20% of payment attempts are abandoned or not completed at the time a member intends to pay. While many of those payments are eventually completed, the delays create additional servicing activity, slower cash flow and, in some cases, early-stage delinquency.
Likewise, roughly one in five payments requires some form of customer assistance, whether by phone, email or chat, adding meaningful support costs that many organizations do not directly attribute to payment acceptance.
Kaplan said institutions should begin looking beyond processor invoices and examine the entire payment journey.
"There is a real issue here," he said. "If you're a credit union or really anybody accepting recurring consumer payments, you have a cost that's related to the payment experience. You can continue to absorb it, you can try to solve it internally, or you can find ways to reduce that friction. But first you have to recognize it's there."
The report stops short of claiming every institution experiences exactly the same economics. Instead, Kaplan describes the research as a framework for understanding costs that often remain invisible because they are distributed across operations, servicing, collections and member support rather than appearing as a single line item.
For credit unions, that may ultimately be the report's biggest takeaway.
Transaction fees remain important, but they may no longer be the best measure of what it actually costs to collect a loan payment. As digital payments continue to evolve and member expectations rise, the institutions that reduce friction throughout the payment journey—not simply negotiate lower processing fees—may find the biggest opportunity lies in costs they never realized they were paying, Kaplan concluded.