Optimize payment performance with smarter KPIs

Key performance indicators, or KPIs for short, measure how effectively an organization is meeting its primary business objectives. Different dictionaries may have slightly different definitions. But the common elements are effectiveness and meeting a goal over time.

You should be tracking your key metrics like conversion rates, authorization rates and churn to judge your overall performance. And if you don't, you might want to take a look at our CKO explains section below to learn more about the basics around how to set KPIs.

While tracking these numbers is vitally important — especially when reporting up the chain — they stop short of providing you with deep insight into why your payment performance is where it is. And, most importantly, where you can improve.

But there is a host of supporting KPIs you can develop and track that will provide this more nuanced, actionable view. Getting those insights isn’t always straightforward, though. It requires you to develop a more sophisticated set of KPIs — and to have the ability to access the right data to inform these metrics. Yet the work is worth it. Unlocking these insights provides the foundation for you to drive meaningful change that will improve your payment performance and ultimately generate more revenue for your business.

Let’s take a look at what additional metrics you might want to consider when thinking about optimizing checkout conversion, improving authorization rates and reducing churn.

How to use smart KPIs to optimize checkout conversion

There is a multitude of reasons merchants lose out on a sale. It may be due to a poor checkout experience, payment failure, or maybe the customer got distracted and forgot to make their purchase.

And while it's essential to have visibility into the number of sales lost at the checkout — and track performance from month to month — it's too high a level to inform what areas you need to work on to improve that number. There's a world of difference between losing an online sale due to a poor checkout experience and payment failure. Conversion should be measured in as much granular detail as possible, preferably at each step in the checkout flow.

A concrete first step is to track abandonment for both mobile and web-based orders at every stage of the checkout. You may discover that customers abandon their carts when asked to select their payment method. That behavior may indicate that you're not offering their preferred payment method. Our research conducted in partnership with Oxford Economics finds that 56% are likely to do this — and never return to the website again .

Or maybe they've filled out their details and stopped short of pressing pay. That might indicate customers lack trust in the security of your checkout. Again, our research with Oxford Economics finds that 74% of consumers regularly look for encryption details, and 71% have been permanently put off a site due to security concerns.

Conducting this analysis and establishing a select number of smart KPIs will provide you the platform to test your hypotheses to see if they drive improvement at each stage of the checkout — and improve the overall topline conversion number.

And some may want to go one step further. As we've previously discussed, consumer behavior is driven by many factors, including age, location, and even gender. So you may want to parse out your metrics and develop KPIs specific to a set of key customer personas. This approach will give you another level of granular detail. And it’s especially advantageous if your business has defined particular customer segments to target as they will allow you to focus your efforts and drive real business value.

Using smart KPIs to improve authorization rates

While you may need to make some informed assumptions about the reasons you're losing sales at the checkout, understanding why payments are failing at the authentication stage is a bit more clear-cut.

Common reasons for payment declines are insufficient funds, expired cards or outdated credentials, and suspicion of fraud . And in all instances of authentication failure, you should receive a response code detailing the problem.

We use the word 'should' because our research finds that 65% of merchants don't receive this information from their payment provider. Also, there are response codes that provide very little insight, if any, into why the payment failed. Yes, we're talking about every merchant's favorite: 'do not honor' response codes.  

Both challenges present significant roadblocks to developing smart KPIs and making progress in this space that you must work to overcome. But the return is worth the effort.

For example, you may uncover that payments commonly fail because your customers have insufficient funds. In that case, you can consider offering automatic roll-overs to another payment method or experimenting with when and how you execute retries.

If expired cards are a common issue, you may wish to build an automatic prompt for your customers. Or subscribe to your payment provider's account updater service if that's available.

Again, tracking these KPIs at a universal level is just the starting point. To uncover even more detail and insight, you may wish to build KPIs and compare performance by acquirer/processor, payment method, issuer, BIN and whether the payment is domestic or cross-border. This will give you another level of detail to help you decide whether your technology stack optimal and whether you need to rethink how you route your payments.

How to devise KPIs A KPI is only as valuable as the action it inspires. So, be clear on the objective for each KPI from the get-go. What job are you expecting it to do?

Connect each KPI with a key objective within your business, not someone else’s. Too often, organizations adopt industry-recognized KPIs around revenue, risk or costs. And then they wonder why these don’t reflect their own business. Or fail to bring about any positive change.

Beware of unreliable proxies and ‘measurability bias’. Some things in business are challenging to measure. Customer satisfaction or brand value, for example. Don’t choose metrics simply because they’re easy to measure. You risk creating a mismatch between what you’re measuring and what you’re managing. Between target and outcome.

This’ll ensure your KPIs are useful and goal orientated. It’ll also help create a KPI-driven culture within your business, but that’s not all.

Socialize and sense-check your KPIs with colleagues and stakeholders, including partners. That’ll help prevent the proxy thinking and measurability bias above. Different departments are likely to have different opinions. That’s fine. Try to come to a consensus and devise the right KPIs for your business as a whole.

Finally, remember that setting KPIs is not a one-and-done activity. Anything can happen in your business, with customers, partners, suppliers or the trading environment more generally. Incorporate regular reviews into the process. There’s always room to improve and evolve your KPIs, which become dynamic by default.

Using smart KPIs to reduce churn

Can your business tell involuntary from voluntary churn? And do you know the insight to know what procedures to put in place to prevent it? Subscriptions lapsing due to technical reasons are different from the customer deciding to cancel a subscription. And it's essential to make the distinction to understand how you drive improvement.

Again, that’s just the tip of the iceberg. You might want to develop KPIs that explore whether particular payment methods are more likely to produce churn. Or maybe you want KPIs to understand better when and when not to bill customers. Or perhaps you want to understand whether or not the communications you’re sending when billing customers is useful.

All these metrics exist somewhere; it's just a matter of revealing them, building meaningful KPIs around them, and using them to measure the impact of your changes over time.

How your payment provider support your efforts

Your ability to build smart KPIs rests entirely on your ability to access and control your payments data and the most granular level. You need to have access to every decline code, every transaction in every market. This type of radical transparency equips teams to make smarter decisions to boost revenue, growth and profitability.

This is not a given. As we explored earlier, our research shows a chasm between the data merchants need and the data provided to them by their payment platforms. And often, the reason is that legacy platforms are built with 20-plus components, sourced from 20-plus different providers, held together with bridges and proxies. This means data lives in siloes and gets lost or augmented as it passes through each system, leaving merchants in the dark about their true payment performance.

Payment providers that own and build their technology don’t have the same problem. Firstly, there’s little-to-no data erosion. It’s not like moving from a giant straw to a smaller straw to a coffee stirrer, where data gets squeezed out. A modern payment provider with modern systems can capture, store and pass all the data.

Of course, capturing the data is only half the story. If you can’t collect and visualize it in a meaningful and timely way, then the value is just theoretical. So the second important implication is that a modern payment platform allows businesses to build directly into its API. This means you can easily view data and feed it into your other internal systems so that it can be integrated into broader reporting structures and interpreted for business-specific insights.

When you work with a payment provider with those two capabilities, you can start leveraging granular data and building smart KPIs that inform and drive payment performance.

Kickstart your connected payments journey today with our exclusive action plan.