What Will You Pay To Escape A Failed Payment?

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We all know the cost of a failed payment in terms of loss of service, late payment fees, reinstatement charges, and so on.

In this post, I’m going to estimate the cost of escaping a failed payment.

I had to pay college fees of INR 300,000 (~US$ 4615). The college supported an array of digital and paper-based payment options viz.

  • Digital: Log in to college website, use college’s ePayment Gateway and pay by Credit Card.
  • Paper: Demand Draft.

I evaluated the pros and cons of both options.

DIGITAL PAYMENT

Pros:

  1. Credit card reward points: 3000 (@ 1 point per INR 100 spend). Generally, reward points can be redeemed for gifts worth INR 0.25 per reward point
  2. Deferred payment of 45 days, so no need to break FD immediately
  3. Automatic linkage of remittance info to student’s account
  4. Convenience of making the payment from home

Cons:

  1. Risk of failed payment due to two factor authentication and patchy Internet connection, as highlighted here.

PAPER-BASED PAYMENT

Pros:

  1. Zero risk of payment failure

Cons:

  1. Visit bank to buy the Demand Draft (3 hours)
  2. Demand Draft commission (INR 1000)
  3. Loss of interest because I need to break FD immediately
  4. Visit college to submit the Demand Draft (1/2 hour)
  5. Manual updation of payment on college website (1/2 hour)

Now, let me compute the “dollar value” of the difference between these two options:

BASIS: INR 300,000 Payment

INR


DIGITAL


PAPER

Gift value of 3000 reward points @ INR 0.25 per point

:

+750

Interest on INR 3.00 Lakhs FD for 45 days @ 8.50% p.a.

:

-3188

Demand Draft commission

:

-1000


TOTAL

:


+750


-4188

The Paper option had an incremental cost of INR 4938 (being INR 750 + INR 4188) ~ INR 5000 (US$ 80).

I still opted for it.

Which suggests that’s the monetary value I attached to escaping a failed payment and the subsequent trouble of getting my money back.

In short, the price I was willing to pay for peace of mind was INR 5000 / US$ 80.