In today's competitive marketplace, offering customers exciting products and services is needed to generate sales, but more is required to ensure steady profits. In that sense, payments form a critical step in profit generation and ensuring return on investment of capital. The data speaks for itself.
Moreover, as merchants, one must be aware that global payment fraud has tripled over the past decade. It has risen from $9.84 billion in 2011 to $32.39 billion in 2020 and is projected to cost $40.62 billion in 2027—25 percent higher than in 2020. This makes today's shoppers concerned about the safety of their payments and payment information. Data estimates suggest that 72 percent of Americans worry about having their personal or financial information stolen, and 67 percent worry about being a victim of identity theft.
So, if you're a merchant looking to boost eCommerce revenue and grow, overcoming customers’ payment reservations or any friction in the payment process is essential. To ensure a seamless payment process, tracking payment KPIs becomes vital to optimizing your payment performance. So let's go over the essential metrics.
The foremost payment metric to track is the conversion rate to ascertain how many of your orders end up as successful purchases. While this number gives away a bird's eye view of your overall payments' performance, getting granular with the details is also essential to get an accurate picture of what may be going wrong and take the necessary remedial measures. Usually, multiple factors can impact your overall payment conversion rates.
Deep diving into each is advisable. Moreover, when you track payment conversion, following interactions between these inputs and the purchase site is also helpful.
For instance, credit card payments may seamlessly work on your eCommerce store. However, there may be friction with credit card payments concerning in-store POS interactions. Therefore, you should make this analysis as holistic as possible.
Authorization rate is the percentage of transactions that are approved by the issuer to be processed. It is calculated as the ratio of the number of successful payment approvals to the total number of attempted transactions. Though related, this ratio may not always equal the conversion rate. That’s because conversion can be impacted by factors other than authorization as well.
Boosting the authorization rate can positively impact revenue to a significant degree. For instance, in a company having annual revenue of $100 million, a 1% boost in authorization rates can win them an extra $1 million in yearly revenue.
Issuer declines occur when the issuing banks reject by putting a stop or hold on a credit card transaction. When this happens, they return a specific reason code that explains the issue behind their decline.
Now, this may be a soft decline due to concerns like network connectivity issues, insufficient funds, or hard declines arising from invalid account information or suspected fraud.
Studying the frequency of different reason codes for issuer declines is essential to go to the root of the problem. Rising hard declines indicates you need to pay more attention to your fraud prevention setup. However, you should also notice soft declines and try to find ways to reduce them.
With online purchases and eCommerce fraud on the rise, tracking the fraud rates in your payment infrastructure analysis is also essential. The fraud rate metric measures the proportion of fraudulent transactions in relation to the total approved transactions. This makes a good starting point concerning how serious the issue of fraud is for your business. On average, it’s recommended that your fraud-to-sales ratio is below 1%. However, this can vary with the nature of the industry.
Chargeback rates provide deeper insights into your payments health. Chargebacks occur when customers dispute a purchase made using their card with the card issuer or the bank. In these cases, the issuer credits the customer and debits the merchant. In turn, the issuer provides a chargeback reason code that classifies the reason for the payment reversal. A surge in specific chargeback codes indicates that some of your payment or operational processes may need improvement.
Often, a high chargeback rate is correlated with fraud. However, it's essential to be aware that chargebacks can arise when customers seek a refund for legitimate purchases.
As a merchant, you can dispute the chargeback. Still, it's best to ensure reducing the incidence of chargebacks. That's because high chargeback incidence can lead your business to land in credit card network monitoring programs that include hefty fines and penalties or even have your ability to process credit cards terminated and your business placed on blocklists like the Mastercard Alert To Control High-risk Merchants (MATCH) list. In terms of numbers, Visa’s chargeback limit stands at 0.9 percent of chargebacks as a ratio of sales in the current month after a threshold of 100 chargebacks have been reached. The corresponding percentage for Mastercard is 1.5 percent.
Simultaneously, you also need to be concerned by too low or near zero chargebacks as that may indicate you’re blocking too many payments as being potentially risky. Moreover, it's also essential to monitor and analyze your business' performances in disputing chargeback because this directly impacts your profitability. Often, many merchants do not dispute chargebacks correctly. In some cases, they do not dispute them at all.
If you're proactive in fraud prevention, you may have robust prevention mechanisms. However, more than simply having them is required. You also need to be tracking their accuracy.
Monitoring the precision or the percentage of fraudulent transactions from the total number of declined transactions is a good indicator of how well your fraud prevention solution works.
If good customers get blocked-in error, the result is called a false positive. Estimates suggest that false positives led to e-commerce losses of $443 billion in 2022 – larger than the amount lost to real fraud. This is something you want to minimize. So, you should aim to have a high precision rate or a lower incidence of false positives to protect your interests.
However, it's also crucial to note that the precision metric can be misleading if your fraud prevention solution inaccurately tags legitimate transactions as fraud.
As an ecommerce merchant, optimizing your payment performance is critical to your success and growth. Tracking essential payment metrics regularly helps to ensure you're aware of the exact situation and where you may need to intervene.
While your goal should be to maximize payment conversions, keeping fraud rates low is equally essential for protecting your and your customers’ interests. At the same time, minimizing chargeback ratios while ensuring good customers aren't blocked in error is also crucial to protecting your bottom line.
If you’re looking to get ahead in the fight against eCommerce fraud and grow your profitability, get in touch with Justt now to see how our chargeback mitigation solutions can help.