Know your metrics
8 crucial metrics every payments PM must track
With the increase in adoption of digital payments across the world, there’s an increasing need for payments product professionals who understand the complex payments ecosystem — the participants, systems and processes to successfully route every digital payment request. Payments PMs are responsible for improving payments experience on the site along with the payment success rates.
This piece tries to provide a top-view to help visualise the payment funnel and identify critical metrics to look at.
Visualising the payment funnel
Image 1 represents a payment funnel for any 2FA enabled digital payment.
Primary Goals
Listed below are primary goals any PM owning an existing payments product chases other than exploring for new revenue streams:
- Increase Gross Transaction Volume (GTV $)
- Optimise processing costs (COGS $)
- Improve margins (%)
- Improve payment success rate (%)
- Reduce time to complete payment (s)
- Drive payment conversion (Intent to pay — > Initiate payment) (%)
Key Metrics
1. Gross Transaction Volume ($)
Gross Transaction Volume (GTV $) is the primary indicator of top line of the business. GTV provides a high level view of the business in terms of total amount of payments being processed on the platform. Increase in GTV means either more payments are being processed on the platform or the average size of transaction on the platform is increasing. Increase in GTV does not necessarily mean increase in bottom line of the business.
2. Blended Commission Rate (%)
A payment services provider may offer different commission rate (payment facilitation fee) to different merchants (customer for payment provider) depending on the kind of volumes the merchant brings in. Enterprise customers with better volumes and so, with higher bargaining powers are typically able to negotiate better rates.
Blended commission rate provides a portfolio level view to assess the revenues.
3. Cost of Goods Sold (CoGS $)
The payment facilitator integrates with multiple banks and processors to provide a unified experience to its customers. Banks work with multiple payment processors (think of them as a 3rd party managing tech operation for the bank — this is an over-simplification though) which help provide technical infrastructure for different modes of payments e.g. cards, net banking etc. The costing for different payment modes for banks vary. CoGS reflects the total processing cost payable to the banks and other third parties. It is the aggregate of unit level cost for each payment.
4. Gross Profit (%)
Gross profit indicates the unit level profitability for the transactions processed by adjusting CoGS against the commission fee collected. Gross profit/loss is what the company makes/loses on each payment processed excluding all other expenses.
Go deeper into this metric at payment option (e.g. card, UPI, net banking), instrument type (e.g. prepaid card, corporate card), and merchant category (e.g. government, utilities, education, NGO etc.) level and you will know how to structure your checkout page for a better bottom line.
5. Payment Initiation Rate (%)
Payment initiation rate reflects the intent to pay. This is the percentage of users who choose to initiate a payment by entering their instrument details, of all the users who visited the check out page. Lower payment initiation rate could either mean that user experience for one or more of the payment options provided is confusing, or that multiple instruments/ banks for a particular payment option are not supported, or both — among other possible reasons.
Break the payment initiation rates down by user platform (iOS, Android, Web, mWeb etc.), payment option selected and you will know where’s the scope for improvement in the payment funnel.
6. Payment Success Rate (%)
Success rate for payments can be defined in multiple ways depending on what is counted as a success. While looking at successful payments over total payments initiated would give an attempted success rate, looking at successful payments over sum of successful and failed payment would give an actual or realised success rate. Actual or realised success rates are typically higher than the attempted success rate because attempted success rates by definition also takes into account payments abandoned by initiation.
Payment success rates vary for different payment options. Improving payment success rates should be the single most important KRA for any payments team till the success rates are stabilised.
7. Time to pay (s)
Time to pay, measured in seconds, helps understand which payment option takes longest to complete a transaction on an average which can be an indicator of number of data points required as a part of entering instrument details (e.g. card number, cvv and expiry for a card transaction vs VPA for a UPI transaction) or the lag in authorisation process owning to slow bank site or multiple handshakes to complete the payment.
8. Refund/GTV (%)
Refund volumes are total obligations to pay the buyers back if a transaction is disputed or a product is returned and a refund is requested. Refund is an important risk component for the payment platform, especially if the merchant is already settled for the payment and the obligation of settling the buyer and then recovering from the merchant rests with the platform.
Reach out to me if you would like to discuss further on this topic. I am at bits.ankit@gmail.com | https://www.linkedin.com/in/a4ankit/ .
