Payments Key Performance Indicators (KPIs): A Basic Perspective
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Overview of the basics behind KPIs relevant to payments operations.
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Payments Key Performance Indicators (KPIs): A Basic Perspective
- 1. Key Performance Indicators: A Basic Perspective Presented by Chris Uriarte Chief Payments and Product Officer Vesta Corporation
- 2. How to calculate KPIs # KPI Calculation 1 Post SettlementFraud Detection Rate # of "no" from "Approved" from PreSettl + PostSettl / # of "Customer FINISHED Checkout" # of orders cancelled as fraud / total number of orders taken 1 Pre Settlement Fraud Detection Rate # of "no" from "Approved" / # of "Customer FINISHED Checkout" 2 Payment Reversal Fraud (manual) Review Rate # of "YES" from "RealtimeMerchant Detection…" from PreSettl+ PostSettl+ PayReversal/ # of "Customer FINISHED Checkout"no. of orders reviewed real-time or offline / total number of orders taken 2 Post SettlementFraud (manual) Review Rate # of "YES" from "Realtime Merchant Detection…" from PreSettl + PostSettl + PayReversal / # of "Customer FINISHED Checkout"# of orders eviewed/total # of orders taken 2 Pre Settlement Fraud (manual) Review Rate # of "YES" from "Realtime Merchant Detection…" from PreSettl + PostSettl + PayReversal / # of "Customer FINISHED Checkout" 3 Pre Settlement Validation Rate # of "YES" from "TXN details validated…" / # of "Customer FINISHED Checkout"# of TXN "yes" validated / total # TXNs attempted (successful and failed) 4 Pre Settlement Authorisation Rate # of "YES" from "Payment authorised" / # of "Customer FINISHED Checkout"# of "Yes" successful TXNs / total # TXNs attempted 5 Pre Settlement 3rd Party Conversion Rate (Authentifiaction) # of "YES" from "Successfully authenticated" / # of "Customer FINISHED Checkout" should be against total # TXNs attempted (successful and failed) 6 Pre Settlement Confirmation Rate # of "YES" from "Order Confirmed" / # of "Customer FINISHED Checkout" should be against total of all orders attempted so including successful and failed. 7 Post SettlementCollection Service Rate # of Invoices from "Collection Service" / # of "NO" from "Settlement Successful?" 7 Post SettlementCollection Service Rate # of Invoices from "Collection Service" / # of "NO" from "Settlement Successful?" 8 Post SettlementPaid / Settlement Rate # of "YES" from "Settlement Successful" / # of "Order Confirmed" agreed 9 Post SettlementRetry Success Rate # of transactions successfully retried/total # transactions retried 10 Payment Reversal Reversed / Chargeback Rate # of "Payment reversed by Customer or Issuer" / # of "Order Confirmed" agreed 11 Payment Reversal Representment Success Rate # of chargebacks won/total no. of chargebacks represented 12 Payment Reversal Dispute Success Rate same as above? 13 Payment Reversal Refund Rate # of "Payment returned to customer" / # of "Order Confirmed" agreed 14 Payment Reversal Collection Paid Rate # of "YES" from "Collections Paid?" / # of "YES" from "Collections Service?"
- 3. What are KPIs? Why are they important? How KPI rates and indicators are calculated, and why they vary from business to business The pitfalls of trending analysis and when not to compare your KPIs to others in your industry We’ll discuss… Using KPIs to drive change and support new initiatives in an environment where change is the only constant
- 4. Typical KPIs • Risk deny rate • Chargeback rate • Bank auth rate • Review rate What are KPIs? Why do they exist? Risk decline rate 13% -20% 2013 - 2014 12% Chargeback rate 2014 2014 85%Acceptance rate
- 5. The case for KPIs Benefits • Enable business decisions to be tied back to trends • Alert a merchant to potential problems, challenges and roadblocks that may arise • Focus KPIs down to employee performance level • Provide reasoning and justification for budget planning, hiring, and expansion • Monitor third-party vendor performance • Measure outside influences Downsides • Collecting too much data can make it difficult to interpret • Focusing on micro views can degrade overall business decision making • Looking at too many KPIs may overcomplicate the value (analysis paralysis) • Creating and maintaining KPIs can be a great deal of work • Interpreting KPIs can be a challenge and can produce unintended outcomes
- 6. KPIs: The good, the bad and the Holy Grail • Problems with KPIs – MRC EU benchmarking committee discoveries – Merchants do not collect the same information – Merchants are not consistent in how they calculate KPIs – Business models vary widely; e-commerce is still the Wild West • Transaction processing flows vary widely from merchant to merchant – Transaction flows and vendors vary from merchant to merchant – Identify the transaction flow as the starting point to ID data collection points or areas of focus
- 7. N N Where do KPIs come from? REVERSAL CHARGEBACK RECOVERY CHARGEBACKREVIEW RISK DECLINE REVERSAL RATE CHARGEBACK RECOVERY RATE CHARGEBACK RATE REVIEW APPROVE / DECLINE RATE RISK DECLINE RATE BANK AUTHORIZATION RATE Y Y PROCESSOR DATA FEED CUSTOMER SERVICE DISPUTE AND COLLECTIONS Y SHIP N BANK AUTHORIZATION
- 8. Calculating KPIs: Examples • Defining the data collection process and the data – Define each data element up front, where it comes from, and level of confidence – Ensure consistency over time – Define what the KPI represents and what inference can be drawn from it – Are you looking at transactions, value, comparative time periods, percentages? • Typical KPIs – Attack rate: concentrated attempts which result in high deny rates – Approve/deny rate: for bank authorizations, risk system, order review – Conversion rate: Percent of successful orders cleared and shipped – Chargeback rate: Map rate vs. run rate, % of orders, $ amount, transaction nos.
- 9. Typical calculation equations: Examples • Risk deny rate: # of orders denied by my risk solution by reason code – Total of orders or % of total transactions • Bank authorization deny rate, adjusted for re-submissions? – Track the reason codes, track by BIN number, trend over time • Chargeback rates – Map rate or run rate or both, trend over some time period, return reason codes (may indicate processing or setup problems) • Risk deny review rates (false positive KPI) – Effectively track the good orders that are denied by risk system or order review
- 10. Checklist: Do my KPIs support my business needs? Are my KPIs actionable? Do I look externally? Can I use my KPIs for continuous process improvement? Can my KPI strategy predict the future? Do I track external trends? What can I draw from external studies/surveys?
- 11. How do my stats compare? ACCEPTANCE RATE RISK DECLINE RATE MANUAL REVIEW RATE CHARGEBACK RATESEGMENT 97% 3% 6% 8%PHYSICAL 85% 20% 0% 12%DIGITAL 90% 8% 5% 5%TRAVEL 70% 18% 0% 4%GAMING
- 12. What happens when a new product launches? 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Trans Vol. BankDeny RiskDeny Review Chargeback New Prod
- 13. Redefine your KPIs for action Internal View Look within your own operation • Traditional KPIs • Staff performance • Conversion rates • Total cost of operations/payments • Add list of calculated KPIs from EU External View Look beyond your own operation • External studies and surveys • Vendor market trends • Vendor performance KPIs • KPIs that support new solutions
- 14. Anticipate changes, make decisions • KPIs must support decisions for change • KPIs must be comparable to evaluate change • KPIs should be forward looking in order to anticipate changes in time to actually make them and achieve success • Fraud, transaction volumes and cost containment will be the most impactful changes • The next wave of solutions will include more dependency on outsourced providers
- 15. Looking forward • Ten-year industry evolution in fraud and payment solutions • Shared data schemes: The last big thing? • Today it’s the rise of machine learning that will enable the next big change – Outsourced machine learning – Full indemnification of all fraudulent transactions, chargeback losses fully covered by service provider • A forward-looking KPI strategy will provide the right information to make changes early and reap the greatest benefits
- 16. Conclusion • Leverage your KPIs to focus on both internal aspects and external forces influencing business trends, needs and practices • Comparing your KPIs with competitors must be done carefully • Check KPIs of industry trends before changing operations, adding new services or outsourcing major components of your business • KPIs for current state are critical but look forward to create new KPI views, competitors, vendors, outside forces and trends • Market KPIs for third-party vendors and tools are more important than ever
- 17. Thank you Chris Uriarte Chief Payments and Product Officer Vesta Corporation www.trustvesta.com Chargebacks and fraud consume 13-20%of operational costs 2013 Payment fraud cost merchants $32B 2013 $2.8BActual CNP fraud losses Nearly HALF of digital goods merchants worry about mobile payment risk 2013-2014 Fraud increased 38% 2018 $6BPredicted CNP fraud 2015 Online sales accounted for 50%of total retail sales
Editor's Notes
- This is a teaser/ opening joke to show that there is a lot of information available on the MRC website and in books like David Montagues etc. This will set the stage for the fact that we only have 45 minutes to cover a huge topic so this session will look more at the evolution of how KPI’s have changed and its an exploration of new ways to think about the value of KPIs going forward in an industry that is rapidly evolving with very huge effects on retailing.
- MRC Vegas 2016 Presentation Title of Session: A Basic Perspective of KPI’s and internal dashboard information KPI’s or Key Performance Indicators are often complicated, confusing and lack standardization across merchants and vendors. This session will bring focus on typical KPI’s, how they are calculated and some of the reasons for variances in the industry. The goal is to provide fraud managers and others with the insights and typical formats so that attendees have what they need to better understand how to create unique views into fraud shop performance. Industry veterans from online retailers and service providers will start at the beginning and walk through the basics of KPI development for daily, weekly, monthly and annual reporting. Discussion will cover specific differences by market verticals and product concentrations (digital vs physical products). In addition, examples of typical KPI sets will be reviewed. KPI topics to be covered include: Risk Deny Rates, Manual Review Rate (“Outsort Rate”), Calculating your Fraud rate, Bank Authorization rates and what they mean, Understanding False Positive rates and many others. Key Takeaways: Understand what KPI’s are and how they are important to you and your business decisions See how a variety of KPI rates and indicators are calculated and why they vary from business to business Understand the pitfalls of trending analysis and when not to compare your KPI’s to other in your industry How to create a set of KPI’s that will drive change and support new initiatives in an environment where change is the only constant
- What are KPIs and why do they exist in the first place? Goal is to be able to assess where merchant is at any point – health of business, etc. But are your KPIs a catalyst for change?
- Do merchants need to compare their KPIs to other companies? Why are they so hard to standardize? Unlike some other industries (e.g. banking /FASB) there is no real governing authority to provide guidance and compliance The ecommerce business models that have evolved have only one thing in common – they are unique to that entity. Refer to the MRC EU KPI project that was a offshoot of the benchmark committee. When the Benchmark committee tried to find common points of comparison the problem became apparent that not all merchants calculate the same way or collect the same information. One can conclude that ecommerce evolved as individual entities with total disregard to any industry standards. When it comes to fraud issues all of the vendors customize solutions for each client thus causing stats to skew even more.
- Look at the touchpoints of a transaction to understand where we should focus data collection and ongoing monitoring. What are the buckets we need to consider where we collect, sort and filter the data? For each category of KPI’s that we can collect, consider the depth of the data for instance: Bank auth could be looked at in a simplistic way such as total decline or total accept, but, it could go deeper and provide more decisionable information if it was broken down by BIN (issuer banks), reason codes and geographical or product data. This approach then opens up new ways to compare data into new views. Looking at only the transaction flow limits us to looking inward Merchants must change their perspective of the world and their business to incorporate a wider view of their opportunities.
- What is the output of merchant data that can provide actionable information? It’s important to understand what the consolidated output will be and the use cases for change or action. What data calculations will provide the basis for research and ultimately to make significant changes to the strategic and financial direction of your operation?
- Begin with the basics of data collection and comparative calculations. You may get your KPI’s from your service provider, review and revise annually at minimum.
- Our standard KPI models have served us well to view our current state and look back at trends, but may not full fill the needs we have for looking forward, since KPI’s are typically only a reflection of a short historical window only looking into our businesses. Often not looking outward to industry trends, sales volumes and projections. Let’s look at our own use case for tracking success, changes, monitoring for anomalies and so on. As we know the industry move quickly and new services and options become available all the time. How do I determine I need to make changes, add services re-examine my whole operation? Do my KPI’s prepare me and keep me up to date on my successes and gaps?
- This slide makes a point of showing the comparisons and how they will differ depending on who the comparison is made to. How do my KPI’s compare to others in my category or size or product mix? What valuable takeaways can I achieve by comparing to others? How do large scale studies guide merchants? Often KPIs are unique to the merchant and their internal needs. Change is constant in ecommerce and it includes more variables affecting payment and risk cost control. New products emerge on current operations processes, shift from physical to digital products is an example. Leads back to the European study and not being able to come up with standards. Most often you best guide for comparison is to ask your vendors or other resources who have
- How change impacts KPI’s and how you need to re-think what is tracked and compared. This chart show how via an example the data changes over time. Then a new digital product is launched and the chargebacks rise, bank denial rate rises, old volume drops, etc. All KPIs are affected when a new product is introduced. Also note that the order review started dropping off since the new digital product didn’t require order review.
- KPIs can be used to focus on both internal aspects as well as the external forced influencing our business needs and practices. E.g. Setting KPI models for external forces is not an uncommon concept. We all must abide by the Visa 1% chargeback rule which forces us to measure our processes in relation to how we monitor our chargebacks to comply but this also has a compounding effect of forcing us to monitor and adjust other related metrics. Such as Acceptance rates, deny due to risk rates, bank decline rates and so on.
- This slide is the pivot slide to new services being offered in the marketplace and how past decisions were challenging but new services will make it even more difficult unless good data is collected and used to anticipate future changes.
- This is the pitch for complete outsourcing and how the next big thing will be machine learning, expensive analytic teams, shared data and experiences and finally full indemnification.
- This is the final wrap-up conclusion to the session: Key points: Use KPI’s for monitoring but also an objective long range view of your operations Don’t be afraid to change the data or calculations if current method no longer provides useable information Be cautious of comparing your operations to any others, even in the same vertical Also be cautious of comparing to industry benchmarks or surveys. We know that there is no current standard across ecommerce merchants / businesses for collecting and calculating data Create your own case study scenarios for change by incorporating KPI’s, thus, testing if you have the correct or best information for change.
- This slide can be used during the questioning period or if the preso goes short in time we can add details to these numbers and tell a story of the trends and predictions of the industry.