The Hidden Cost of Payment Friction: A Case Study in Insurance Operations : How a structured diagnostic uncovered £1.1 million in annual opportunity across three payment value streams

When most insurance operations leaders think about efficiency, their minds turn to claims handling times, call centre productivity, or quote conversion rates. Rarely does the humble payment process get the spotlight it deserves.

That's a mistake.

In a recent engagement with a UK motor insurer, we conducted a comprehensive diagnostic of their end-to-end payment operations. What we found was striking: fragmented ownership, outdated processes, and a collective blind spot that was quietly costing the business over a million pounds annually.

This is the story of that diagnostic—and the lessons it holds for any insurance or financial services organisation serious about operational excellence.

The Starting Point: Payments as an Afterthought

The organisation had grown successfully over several years, but their payment infrastructure had evolved reactively rather than strategically. Three distinct payment value streams had developed in relative isolation:

• Payments In – customer premiums at new business, renewal, and mid-term adjustment

• Payments Out – claims settlements, compensation, and refunds

• Back Office – reconciliation, treasury operations, and compliance

  
  

Each stream had its own processes, its own pain points, and crucially, no single owner with visibility across the whole picture. Payments were treated as plumbing—essential but unglamorous, and therefore largely ignored until something went wrong.

Our brief was simple: understand the current state, quantify the opportunities, and provide a clear path forward.

The Diagnostic Approach

We deployed a structured five-phase framework: Diagnose, Define, Design, Implement, and Sustain. For this engagement, the focus was on the first two phases—building an evidence base and articulating a future state.

Our approach combined several methods:

Quantitative analysis of transaction data, failure rates, and cost drivers across all payment channels. We examined over 900,000 monthly transactions to understand patterns and outliers.

Voice of Customer research with 211 respondents, using Kano analysis to distinguish between must-have features and nice-to-have enhancements.

Process mapping of current-state workflows, identifying handoffs, manual interventions, and control gaps.

Stakeholder interviews across Claims, Finance, Commercial, IT, and Treasury to understand pain points and workarounds.

Supplier and contract review to assess capability constraints and commercial arrangements.

What emerged was a picture of significant hidden waste—not through any individual's failure, but through systemic fragmentation.

Finding 1: Payment Failures Were Driving Customer Loss

The organisation's card payment failure rate stood at 12.5% for new business—more than double the industry benchmark of 4-5%. Renewal payments fared even worse at 27%.

The causes were mysterious: limited data from the payment gateway meant root cause analysis was impossible. Where market-leading providers offer 48 distinct decline reason codes, the incumbent supplier returned most failures as simply "Declined" or "Unknown."

But the real cost wasn't in the failure itself. By tracking customer journeys post-failure, we established that 2.6% of customers who experienced a payment failure never completed their purchase. They simply left.

At an average premium value of £165, those lost customers represented £360,000 annually in new business alone—before accounting for renewals or the failure demand generated by customers calling to resolve payment issues.

The opportunity: A 50% reduction in payment failures, achievable through supplier change and improved fraud controls, would deliver approximately £340,000 in Year 1 benefit from reduced customer loss and failure demand.

Finding 2: Cheques Were Consuming Disproportionate Resource

Over half of all claims payments—50.6%—were still being issued by cheque.

The cost differential was stark: £1.77 per cheque versus £0.015 per BACS transaction. But the direct cost was only part of the story. The cheque process required 0.73 FTE within Treasury for printing and dispatch. A further 2.37 FTE was consumed processing manual BACS payments—workarounds necessitated by gaps in the automated system.

Why the reliance on cheques? The organisation's bank validation tool wasn't configured to verify commercial entities, meaning any payment to a business (repair garages, legal representatives, medical providers) couldn't go through automated BACS. Staff had developed manual workarounds, but these introduced risk and consumed significant capacity.

Meanwhile, Voice of Customer research showed that 65% of claimants ranked bank deposit as their preferred reimbursement method. Cheques ranked second-to-last—only "payment link" scored lower.

The opportunity: Updating the bank validation configuration and eliminating manual payment processes would release approximately £266,000 annually through cost reduction and capacity creation.

Finding 3: Reconciliation Was Fire-Fighting, Not Problem-Solving

Around 0.45% of transactions had reconciliation issues—a small percentage, but across 900,000+ monthly payments, this meant over 4,000 unreconciled items at any given time. Seventy-three percent of these related to items showing as paid in the core system but not reflected at the bank.

Two FTE were dedicated to clearing this backlog, working through items reactively rather than addressing root causes. An Incident Management Team had been convened, but was still in early stages of process mapping.

The reconciliation issues also had compliance implications. SOX Lite requirements and sanctions screening concerns needed to be factored into any solution design.

The opportunity: A root cause approach to reconciliation failures, combined with incremental system fixes, could release approximately £80,000 annually whilst improving control effectiveness.

Finding 4: The Absence of Strategy Was the Biggest Problem

Perhaps the most significant finding wasn't about any individual process—it was about the lack of strategic coherence.

There was no articulated future state for payments. No single owner with accountability across all three value streams. No forum where Payment In, Payment Out, and Back Office improvements were coordinated.

The supplier landscape reflected this fragmentation: separate providers for the payment gateway, card acquiring, and direct debit processing. Multiple contracts, multiple fee structures, and no economies of scale.

The existing payment gateway provider couldn't support expansion of payment methods—a significant constraint given that 12% of surveyed customers reported PayPal as their typical payment method, and 49% said they would abandon a purchase if their preferred option wasn't available.

The customer journey for card payments required five separate screens—a friction point that couldn't be optimised because the hosted payment page sat outside the organisation's analytics.

Recommendations: From Fragmentation to Strategic Coherence

Our recommendations fell into two categories: tactical improvements deliverable within existing constraints, and strategic changes requiring investment decisions.

Tactical improvements:

• Update bank validation configuration to cover commercial entities (enabling BACS for claims payments to businesses)

• Embed sanctions checking at point of payment rather than post-issuance

• Apply root cause analysis to reconciliation failures through the existing IMT

• Connect the complaints system to core payment rails (eliminating manual payment processing)

  
  

Strategic changes:

• Conduct a formal RFP process to consolidate payment gateway and acquiring services with a full-stack provider

• Establish a cross-functional payments forum with executive sponsorship

• Assign clear ownership for payment performance KPIs

• Develop a payments strategy aligned to broader organisational objectives

  
  

The total Year 1 opportunity across all three value streams exceeded £1.1 million—a figure that excluded harder-to-quantify benefits around fraud prevention, customer experience improvement, and compliance risk reduction.

The Broader Lesson

This engagement reinforced a pattern we see repeatedly in insurance and financial services operations: the processes that touch every customer, every day, often receive the least strategic attention.

Payments are infrastructure. They're assumed to work. When they don't, the problems manifest elsewhere—as customer complaints, as manual workarounds, as unexplained attrition, as control findings. The connection back to payment friction often goes unmade.

A structured diagnostic that follows the money—literally—can surface opportunities that have been hiding in plain sight for years.

The question for operations leaders isn't whether payment friction exists in their organisation. It almost certainly does. The question is whether they've ever looked systematically enough to find it.

MintOps partners with UK insurance and financial services organisations to identify and eliminate operational waste. If you'd like to discuss how a diagnostic could uncover hidden opportunities in your operations, get in touch.