Are Your KPIs Keeping Up with Growing Ecommerce Payments Complexity?
From digital wallets to cryptocurrency, the ecommerce payment ecosystem is getting larger, more convenient for more consumers, and increasingly complex for retailers. U.S.-based companies that sell globally online “now accept an average of 7.3 payment methods and 19 currencies.”
As a result, many online businesses are adding new payment KPIs and giving weight to specific KPIs in order to understand and optimize the ROI of their payments investments. In this article, we’ll look at the four “extremely important” payment KPIs identified in the Merchant Resource Council’s 2023 Global Payments and Fraud Survey Report, discuss why these KPIs matter now, and put them into context with insights from ClearSale’s most recent global survey on the State of Consumer Attitudes on Ecommerce, Fraud and CX.
Crucial Payment KPIs
The MRC survey found that while online sellers tracked an average of 3.7 extremely important KPIs in 2022, the average now is 4.1. SMBs tend to be at the lower end of the continuum, tracking three or four, while enterprises track an average of five KPIs they consider extremely important. We’ll look at the top three KPIs identified in the survey and an additional very important KPI that saw a significant increase in monitoring over the past year.
Payment Success Rate
The most-monitored payments KPI in 2023 is payment success rate, with 50% of ecommerce businesses tracking this indicator, up from 45% in 2022. Payment (or transaction) success rate tracks the percentage of orders that are approved, and it’s an important metric for understanding whether their payment methods and gateways are integrated and orchestrated correctly. Tracking the payment success rate is also important for identifying a potential problem with false declines related to fraud screening.
Unless a payment fails because it’s fraud, a failed payment creates friction that can turn customers away and cause brand damage. Among the 5,000 online shoppers in the consumer attitudes survey, 25% reported experiencing at least one declined online order in the past 12 months. In the same survey, 41% said they would never shop again at a site that declined their order, and 32% would write a negative online review about their experience.
Revenue is the second-most tracked payment KPI, up from 41% to 48% over the past year. Understanding the percentage of revenue that each payment method brings in is important for marketing, customer experience, and assessing the value of each method relative to its success rate and its cost. It’s also useful to assess revenue by general payment type to identify opportunities to add more payment methods that customers may prefer.
For example, are digital wallets, BNPL, card payments, or another method generating the most revenue? The answer will vary depending on the website and its customer base, but in general, customers increasingly prefer alternative payment methods. The consumer attitudes survey found that 70% of online customers “feel more secure” shopping on sites with additional payment options, and 55% would consider abandoning their purchase if there are no alternative payment options available.
Payment context may also be worth looking at. Companies may wish to cross-reference its revenue KPI with purchase channels by relating payment methods to shopping sources. More and more consumers are making purchases through social media and with smart speakers. According to Finances Online’s e-commerce forecast report, 16% of consumers use social media to make a purchase, while shopping via smart speakers like Google Home and Amazon Alexa continues to increase. A payment method may not be performing well today but could be vital for a burgeoning online shopping channel in the future.
Cost of Payments
Cost of payments is the KPI that saw the biggest increase in importance and monitoring from 2022 to 2023. Now, 45% of ecommerce businesses monitor this KPI, compared to 37% last year. Understanding payment costs by method and category can help businesses identify the methods that deliver the best ROI and those that lag. It can be tempting to add a multitude of payment options, especially when 20% of consumers say they will abandon a purchase if they can’t use their preferred method. That doesn’t make every payment option profitable, though. By reviewing performance data for payments, merchants can use the information to make appropriate decisions, such as adding more high-performing options, removing underperforming ones, or making other adjustments.
Of course, the cost of payments metric should encompass more than just transaction and processor fees. A certain amount of employee time and infrastructure is required for managing and processing any payments. However, if a payment type requires new or updated infrastructure, or if customer success teams are spending significant time helping resolve issues around certain payment types, businesses may want to consider some of that data as part of payment cost performance measurement.
Payment costs are often passed on to customers, either through fees at checkout or through pricing. As a result, those costs have the potential to affect customers’ purchasing decisions. Price is the top reason that shoppers in the consumer attitudes survey gave for continuing to shop online, with 81% saying they do research to find the lowest product prices before they make online purchases. So, for businesses with low margins and those that compete heavily on price, payment costs can be an indirect but important factor in converting and retaining customers.
Refund rate wasn’t among the top three KPIs, but it was among those seeing the most growth from year to year. 30% of online sellers track their refund rate now, compared to 24% in 2022. Rising rates of refund abuse may be why more businesses are tracking this KPI. The MRC report found that the portion of retailers experiencing refund fraud and other types of policy abuse rose from 25% to 30% over the previous year. At the same time, customers expect fast and convenient return and refund processes. Convenience was the second-most popular reason why shoppers in the consumer attitude survey continue to buy online, and 75% agreed that “a good return policy makes them likely to return to an online retailer to place future orders.”
Knowing refund rates can help businesses spot trends that might indicate an upsurge in return fraud. Drilling down into return rate data can also identify specific products or product categories that have the highest return rates. It might be possible to reduce rates for those categories with tags or packaging that prevent “wardrobing,” such as a large tag that’s visible on the outside of a garment and must be intact for a return.
Refund rate data can also assist in pinpointing products that could benefit from improved packaging to prevent damage during shipping, or products that require more precise descriptions and images to reduce returns due to discrepancies with the item’s description. While having a product description that ticks all of the boxes for SEO is important, if that description doesn’t ensure that the customer knows exactly what they are getting, it could result in an increase in returns and buyer dissatisfaction.
Payments KPIs – A Path to Improving Your Business
These are just some of the many payment KPIs that online businesses can track to make sure they’re getting the most value from their payment providers and delivering the best options to their customers. Adopting these four indicators can give businesses of any size a clearer picture of their most effective payment methods and identify areas where they can make improvements that impact customer experience, fraud prevention, and revenue.