Key Performance Indicators: A Basic Perspective

Presented by

Chris UriarteChief Payments and Product OfficerVesta Corporation

How to calculate KPIs# KPI Calculation1 Post SettlementFraud Detection Rate # of "no" from "Approved" from PreSettl + PostSettl / # of "Customer FINISHED Checkout" # of orders cancelled as fraud / total number of

orders taken1 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 taken2 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 taken2 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 attempted5 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" agreed9 Post SettlementRetry Success Rate # of transactions successfully retried/total # transactions retried10 Payment Reversal Reversed / Chargeback Rate # of "Payment reversed by Customer or Issuer" / # of "Order Confirmed" agreed11 Payment Reversal Representment Success Rate # of chargebacks won/total no. of chargebacks represented12 Payment Reversal Dispute Success Rate same as above?13 Payment Reversal Refund Rate # of "Payment returned to customer" / # of "Order Confirmed" agreed14 Payment Reversal Collection Paid Rate # of "YES" from "Collections Paid?" / # of "YES" from "Collections Service?"

What are KPIs? Why are they important?How KPI rates and indicators are calculated, and why they vary from business to businessThe 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

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 - 201412%

Chargeback rate

2014

2014

85%

Acceptancerate

The case for KPIsBenefits• 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

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

N N

Where do KPIs come from?

REVERSAL CHARGEBACKRECOVERY

CHARGEBACKREVIEWRISKDECLINE

REVERSAL RATE

CHARGEBACKRECOVERY RATE

CHARGEBACKRATE

REVIEWAPPROVE / DECLINE

RATERISK DECLINE

RATEBANK

AUTHORIZATIONRATE

Y Y

PROCESSOR DATA

FEEDCUSTOME

R SERVICE

DISPUTE AND

COLLECTIONS

Y

SHIPN

BANK AUTHORIZATION

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.

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

Checklist: Do my KPIs support my business needs?

Are my KPIs actionable? Do I look externally? Can I use my KPIs for

continuousprocess improvement?

Can my KPI strategy predict the future?

Do I track external trends? What can I draw from external

studies/surveys?

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

What happens when a new product launches?

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q40

0.20.40.60.8

11.21.41.61.8

2

Trans Vol.BankDenyRiskDenyReviewChargebackNew Prod

Redefine your KPIs for actionInternal 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 ViewLook beyond your own operation• External studies and surveys• Vendor market trends• Vendor performance KPIs• KPIs that support new solutions

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

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

ConclusionLeverage your KPIs to focus on both internal aspects and external forces influencing business trends, needs and practicesComparing 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 businessKPIs for current state are critical but look forward to create new KPI views, competitors, vendors, outside forces and trendsMarket KPIs for third-party vendors and tools are more important than ever

Thank youChris UriarteChief Payments and Product OfficerVesta Corporation

www.trustvesta.com

Chargebacks andfraud consume

13-20%of operational costs

2013Payment fraud

cost merchants

$32B

2013

$2.8BActual CNP fraud losses

Nearly HALF

of digital goods

merchants worry about

mobile payment risk

2013-2014Fraud increased

38%2018

$6BPredictedCNP fraud

2015 Online sales

accounted for

50%of total retail sales