Approximately 14% of subprime Buy Here Pay Here (BHPH) loan balances are on weekly or biweekly repayment schedules, according to the Federal Reserve, which found those schedules “create more opportunities to miss a payment.” For BHPH dealers, that makes the payment experience carry more weight than in any other corner of auto finance. If your customers make 26 or 52 payments a year, they encounter the payment process far more often than a customer on a traditional monthly schedule. Every extra due date is another opportunity for a payment to go smoothly—or for friction to turn an intended payment into a missed one.
Using conservative assumptions, our research estimates that approximately 20% of payments are abandoned or not completed at the time of intent. Of those, approximately 25% remain unpaid by the due date or progress into early-stage delinquency. And as most dealers know, chasing those payments is expensive.
Most businesses measure the cost of accepting payments by evaluating transaction fees. But transaction fees capture only the moment when a payment successfully processes—not everything required to actually get paid.
In fact, our research found that accepting a single payment costs about $7.22, or six times the $1.20 blended transaction fee. The majority of the cost—$6.02 per payment—can be attributed to a poor customer experience, and the related support and operations work required to get paid. In other words, more than 80% of the cost of accepting a payment occurs outside the transaction fee.
What Does This Mean For Dealers
For BHPH dealers, that finding takes on added significance. A customer on a weekly payment schedule goes through the payment process 52 times a year instead of 12. That’s 52 opportunities for a payment to go smoothly—but also 52 opportunities for friction to get in the way, a customer to need help or a payment issue to create additional work.
So where do those costs beyond the transaction fee actually come from? To answer that, it helps to look at the four components that make up the total cost of payment acceptance: transaction fees, customer experience, support and operations.
The opportunity isn’t in squeezing a few more cents out of the transaction fee. It’s in addressing the costs that aren’t fixed—the friction, support interactions and operational work that happen around the transaction. That’s where BHPH dealers have more control, and where improving the payment experience can have a much bigger impact. Here’s where to start.
1. Stop Optimizing for the Cheapest Transaction
Transaction fees are the direct costs BHPH dealers incur to process payments. These run about $1.20 each across all payment types and are the expense you have the least control over.
Chasing the lowest rate can work against you. ACH costs about 40 cents per transaction, but a return may not surface for two or three days. Push customers onto recurring ACH when their money lives in CashApp, or when their balance runs thin between paychecks, and the transaction fee-savings disappear into an ACH return, a retry and a phone call. On a monthly schedule, a return still leaves nearly a month to recover the payment. On a weekly schedule you only have about four days. Meanwhile, the next payment is already coming due.
Digital wallets look expensive by comparison at around $5.99 per transaction. However, they likely account for less than 1% of your payment volume. When averaged across all of your payments, digital wallet payments add just a penny to your total cost of acceptance. The method that looks expensive on paper is nearly free in practice.
The lesson isn’t that one payment type is always cheaper than another. It’s that the lowest transaction fee doesn’t necessarily produce the lowest total cost of getting paid.
2. Remove Friction from the Customer Experience
When a customer tries to pay, hits friction and doesn’t finish, that poor experience creates downstream expenses of about $1.31 per payment.
For example, 42% of consumers say remembering logins, passwords and account numbers is the hardest part of paying a loan online. Nearly one-third (32%) say they don’t like having to repeatedly enter card or bank account information. More than one in four (26%) say having limited payment options makes loan repayment difficult, and that percentage jumps to more than one-third for your youngest customers (age 18-29). These are precisely the kinds of friction that can interrupt an otherwise routine payment and increase the likelihood that a customer abandons the attempt. Fix the experience and you could reduce your cost of payment acceptance.
Since the login tops your customers’ list of payment problems, remove it. Replace it with personalized links that enable your customers to make one-click, secure payments with no login, username, password or account number required. Embed those links in the payment reminders you already send by text or email. For your customers who still rely on a printed statement, embed their personalized link in a QR code that they can scan with their phone and pay with just a few taps.
Additionally, when a payment method declines, automatically present customers with another payment option that’s likely to work based on their payment history. This recovers roughly 9% of failed attempts, and it’s another argument for expanding the payment options you offer.
Autopay is the default for most BHPH dealers, but rigid autopay is why customers refuse it. Of consumers who skip autopay, 65% say it’s because they want control over when the money leaves their account. Let your customers pick the days payments come out so they can align their payments with their payday schedules.
When customers can’t resolve friction themselves, the cost doesn’t disappear. It moves to the call center.
3. Keep Payment Problems Out of the Call Center
Support runs about $2.70 per payment. That’s more than double the transaction fee and the largest cost category in the Payment Experience Gap.
Nearly one in five customers (19%) say they regularly call to make a payment by phone. A few prefer it; some simply call out of habit. Others call to make a payment because they hit a roadblock when trying to complete a self-service payment.
When you analyze the “why” behind these calls, you’ll likely find the bulk of the calls your staff fields are centered around helping a customer make a payment or troubleshooting one that failed, resetting payment portal login or answering questions about balances and due dates. Then, of course, you have the necessary hardship conversations that require staff support.
To reduce your cost of payment acceptance, you need to stop your phones from ringing or, at the very least, dramatically cut down on the number of customers calling to inquire about payments. Fixing the customer experience is the first step. Transitioning your customers to self-service payments comes next. An Illinois-based BHPH dealer did just that and now the large majority of its customers’ payments are self-serve.
Most of your customers will pay on their own if someone walks them through it step by step. Train your staff to get them there. When a customer calls to make a payment, instead of asking for payment details say, “let me text you a secure payment link.” Stay on the line while the customer clicks, taps and pays, then watch for it to post before the call ends. Point out that the same link works every time and offer to set up reminders that put the link at their fingertips. One walkthrough is usually all it takes. Once your customers see how easy (and fast) it is for them to pay this way, they will continue to do so.
If your phones ring enough to tie up staff, consider using an intelligent virtual agent. When your customers call, they simply say what they need in plain language and it handles most routine payments on its own. Any calls that require a conversation get routed to your staff to handle personally.
Not every payment problem generates a phone call. Some move downstream instead, turning into returns, retries, disputes and reconciliation work for your back-office staff.
4. Reduce Back-End Operational Work
Operations run about $2.01 per payment and covers ACH returns and recovery, chargebacks, check and money order processing, in-person payment handling and reconciliation.
Despite the name—Buy Here Pay Here—accepting in-person cash payments is among the most expensive ways to collect. Many of your customers have to pay using cash, but they shouldn’t have to drive to your location to do it.
To reduce their operational costs, many BHPH dealers are digitizing cash payments. When customers make in-person payments, let them know that moving forward they can make their payments at retail stores they regularly frequent such as Walmart, Dollar General or CVS. Give them a reusable barcode that they can take to a store nearby their work or home. Explain, it’s just like making any other retail transaction. The clerk at the cash register scans the barcode, they pay with cash, and walk out with a receipt in minutes. The payments post to your system electronically and land in the same file as your cards and ACH for simple reconciliation.
The Future of BHPH
The Federal Reserve is right that more due dates create more opportunities to miss a payment. They also create more opportunities to get paid. Which outcome you get isn’t determined by the schedule alone. It’s influenced by what happens when the customer actually tries to pay.
For BHPH dealers, that’s the bigger lesson. Don’t just measure what it costs to process a transaction. Look at what it takes to successfully complete a payment—from the customer’s first attempt through support, recovery and reconciliation.
When customers have to pay you 26 or 52 times a year, even small improvements in that journey compound quickly. So do the costs of getting it wrong.
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