Payments Metrics: A Delicate Balance

The quest for payments optimization isn’t exactly an easy one. Especially when every win feels like it comes with hidden costs. Your approved transaction volume increases, but so do your chargebacks. You make some changes to lower the cost of processing, but lose some customers as a result. You loosen up your refund policies to keep customers happy, but fraudsters creep in and take advantage of your good will. 

This dynamic can make payment optimization feel like you’re walking on a never-ending tightrope—always delicately balancing improvements in one metric with potential dips in another. Let’s walk through a few examples:

Chargeback Rate vs. Approval Rate

This is one of the most common—and consequential—tradeoffs in payments. A surefire way to increase approvals is to relax your fraud rules enough to let a broader range of transactions through. Doing so puts you at a higher risk of fraudsters targeting your business and driving up your chargeback rate. On the other hand, if your fraud team tightens the reins to reduce chargebacks, they may start blocking good transactions too—hurting your approval rate, frustrating customers, and potentially leaving money on the table.

Striking the right balance between risk tolerance and growth is key. If your chargeback rate is already low, it might be worth taking on a little more risk to boost approvals and revenue; if your approval rate is high, you may have room to cut down on fraud without negatively impacting your loyal customer base. 

Keep in mind, if you employ a vendor to help manage your chargebacks, they might not take this balance into account as much as you might like. Their goal will always be to minimize chargebacks and risk, without consideration for what it might do to approvals. When you’re ready to play with this balance more and find ways to tolerate more risk in pursuit of higher approval rates, you’ll likely need to take control of fraud management yourself.

Transaction Volume vs. Cost

If your business focuses on driving transaction volume and growing revenue, you may opt to grow into new markets, accept more payment methods, or onboard local processors to expand your reach. While these efforts can drive growth, they also have the potential to increase costs. For example, a new method may poach customers from existing, lower-cost options, or could lead to increases in fraud and refunds (and the associated costs). Similarly, new markets sometimes come with higher fraud or refund rates, and a local processor may have higher costs or require expensive local operations that aren’t offset by the increase in revenue.

Optimizing for growth is important, but you must always ensure you’re not undercutting your margins in the process.

Refund Rate vs. Customer Retention

Refund abuse is a growing problem. It involves customers gaming your policies—claiming they never received items, requesting refunds on items they plan to keep, or abusing free return policies to an unsustainable degree. A generous refund policy can improve customer satisfaction and retention, but it also invites this abuse. If you crack down to reduce refund fraud, you may drive away legitimate customers, damage your brand reputation, or even see an increase in chargebacks from frustrated buyers who couldn’t get their money back.

Again, it comes down to finding the right balance for your business.

Finding the Right Balance

There’s no one-size-fits-all solution in the world of payment processing. The right balance between competing metrics depends on your company’s goals and risk appetite. You may be willing to accept a slightly higher chargeback rate to boost your approval rate and drive revenue growth. Similarly, you may decide a few bad reviews are just the price you have to pay to prevent widespread refund abuse.

Here’s the kicker though: these tradeoffs are only manageable if you know they’re happening. The only way to truly know is through timely, accurate, and comprehensive data. You can’t guess your way to payments optimization; you need both visibility into the consequences of the changes you’re making and the ability to act on what you learn. That’s why it’s so important to:

• Collaborate across teams within your organization so you’re not optimizing against each other

• Monitor the ripple effects of changes on your payments data in real time

• Embrace experimentation as a core strategy and use data to guide and evaluate every move

How Pagos Can Help

At Pagos, we believe experimentation is one of the pillars of payments optimization. To determine exactly what’s right for your business at any given moment in time, you need to try new things and observe how changes to one part of your payment stack impact the rest. And to figure out how far you can push before negative consequences outweigh improvements, you need data you can trust.

With Pagos, you can see all your payment metrics side-by-side, across all providers in your existing payments stack. With this level of visibility, you can confidently run A/B tests and monitor metrics like approval rate, decline codes, chargeback rate, and transaction counts in real time. We even provide services for automatically detecting when things go sideways so you can course correct fast!

With the payments data visibility offered by Pagos, you’ll have complete oversight into the immediate and lasting impact of any experiment. And that means you can stop guessing and start optimizing—even when the metrics don’t always play nice together.