Unveiling payment optimisation: insights from Pagos CEO, Klas Bäck

Klas Bäck, CEO of Pagos, shares insights on payment optimisation for merchants and the benefits they can reap.

In 2024, I foresee a fundamental shift in the merchant payments industry, particularly regarding the relationship between payment orchestration and vendor relationships. Payment orchestration companies and payment service providers tend to say that performance issues are mostly caused by the vendor ultimately processing and settling the transactions. Traditionally, there’s been a misconception that changing vendors will solve all payment-related issues. However, the reality is that around 90% of the necessary improvements lie within the merchant's side.

At Pagos, we understand this dynamic. Instead of focusing solely on changing vendors, we empower merchants to optimise their existing systems for better performance. Only then can we help a merchant do what is best to execute their payment strategy.

Our approach is unique; we operate from the merchant side, and we don’t touch the transactions or change transaction flows. By leveraging our services, merchants can more quickly use their data to increase their sales, automate processes, reduce costs, and achieve more with fewer resources. They can improve the total stack of their own operation and their vendor operations.

This philosophy underpins Pagos's existence – addressing the fundamental needs of merchants in the evolving landscape of the payments industry.

First and foremost is top-of-funnel conversion. As businesses scale, understanding your conversion rate and defining what that number should be is becoming increasingly critical. Conversion analysis is usually blind to payment challenges – which is one of the biggest areas where action can be taken to improve. A common example we see is around fraud. Merchants need to constantly evaluate the effectiveness of their fraud prevention rules. Are these rules appropriately calibrated, or are they excessively restrictive, leading to a high number of blocked transactions? Oftentimes these datasets sit within different parts of an organisation.

Then, we delve into the approval rates (or decline rates). These metrics assess the success of transactions sent versus those approved, offering valuable insights into payment performance and what can be addressed.

Thirdly, cost. Payments typically rank as the second-largest operational expense, after costs associated with employees. For most companies, it underscores the importance of leveraging data analytics to optimise costs effectively.

In addition to these core areas, merchants must address other challenges specific to their industry vertical. These may include managing chargebacks, refunds, churn, and maximising lifetime value.

All these factors translate into whether merchants are successfully processing as many transactions as possible and if they are doing everything within their power to reduce operational costs.

At Pagos, we provide no code access to all aspects of a merchant’s payment data across all their providers and advocate starting with fundamental aspects under your control to drive better performance. For instance, the data you send to your vendors profoundly impacts performance. Are you consistently sending the same data to all vendors? This simple question often puzzles many businesses. Without uniform data, comparing vendor performance becomes impractical, rendering evaluation efforts pointless.

So, we start with providing access, via direct integrations to their fraud providers and payment processors, to the right data and monitor it all the time. We seamlessly gather all necessary data, eliminating any extra effort on their part. At the start this is always about giving our customer access to all their data, irrespective of the team or function so that the payment data can be integrated into the workflows, reporting, and analysis that is important.

Once armed with this data, we focus on leveraging it effectively to drive better performance. This involves addressing various components that impact payment optimisation, such as interchange and scheme fees. For instance, we assist merchants in evaluating their payment practices to minimise penalties and optimise transaction routing, including considerations like debit routing in the US.

Moreover, we make sure merchants are adopting network tokenization to its full potential. We work with merchants to ensure that they are leveraging network tokenization for all eligible transactions, thereby unlocking benefits such as reduced interchange fees, increased transaction approval rates, and reduced fraud rates.

Other examples could include the process of evaluating and integrating new payment service providers (PSPs) into their systems. It's like setting a benchmark, ensuring that the new provider outperforms the existing one. Also, we do chargeback metrics monitoring to identify trends and opportunities for improvement. Key metrics include the total number of chargebacks, the proportion that can be disputed, and the win rate of disputes. Plus, Pagos enables monitoring of failed transactions for subscription merchants. By categorising transactions based on the relevant actions to take and implementing retry strategies accordingly, merchants can maximise revenue by retaining customers – and continuously track that over time.

Furthermore, we offer benchmark data, a service highly sought after by merchants. It allows them to compare their performance with that of their peers, answering the critical question: ‘How do I stack up against others in the industry’?

In summary, our approach involves providing merchants with the tools and insights they need to optimise their payment processes intelligently, driving better performance and reducing costs in the long run.

On average, companies effectively leveraging Network Tokenization across all card brands see about a 2-4% increase in approved transactions, along with an interchange reduction of about 0.10% in many markets. For every USD 1 billion processed, this translates to USD 20 – USD 40 million in additional sales, while saving USD 1 million. However, these previously failed transactions represent potential customers attempting to make purchases. A significant portion of them may never return to try again, leading to even greater real-world impacts.

For US domestic transactions, we have found that downgrades can account for 10-20% of Interchange for many companies or 0.25-0.75% of their sales. Additionally, US Debit card routing can result in savings of 0.50-1% on debit cards when processed on debit rails, or 20-30% savings on Interchange and Assessment Fees.

We will continue expanding on our benchmarking capabilities, providing merchants with valuable tools to compare their performance with industry standards.

Additionally, we are leveraging intelligence, machine learning, and AI technologies to improve all aspects of our platform.

You shouldn’t need expensive expertise to query your data or use it for decision-making – we will help our customers’s team handle that more quickly and easily than before via Pagos Copilot, our integrated payment assistant. Consider this scenario: you’re examining your data, but without years of experience in the payment space, it can be challenging to interpret what is happening for many teams. It’s as if people don’t speak the language of payments enough. That’s where AI comes in. It guides you, providing insights into what’re seeing, highlighting key points, and suggesting actionable steps. It even helps you craft a concise summary for your management, focusing on the critical takeaways from the data. In essence, AI acts as your expert assistant, enabling you to drive better outcomes across more teams without requiring decades of industry experience.

We are continuing to improve and simplify monitoring and alerting processes, including identifying opportunities for cost savings automatically. Rather than requiring merchants to constantly monitor dashboards, our system will proactively alert them to deviations or abnormalities, prompting immediate action without the need for manual intervention. This automation streamlines operations and ensures timely response to potential issues.

Moreover, we are developing a range of data-driven services aimed at driving better outcomes for merchants without requiring any additional effort on their part. These services will leverage merchants' existing data to signal optimisations and address pain points, thereby delivering tangible benefits without the need for manual intervention.

One specific area of focus is enabling merchants to better manage subscription cancellations. With issuers increasingly allowing consumers to cancel subscriptions directly through banking apps, merchants risk losing revenue and opportunities for retention. We aim to bridge this gap by facilitating communication between merchants and issuers, enabling merchants to offer incentives or alternatives to subscription cancellation, ultimately preserving revenue streams and improving customer satisfaction.

Finally, all the data that we have harmonised is even easier to integrate – you can request transaction-level details inside the tools and stream data to other systems for integration into existing workflows, all without the headache of mapping and preparing.

Through these initiatives, Pagos is committed to empowering merchants with the tools and capabilities needed to navigate the evolving landscape of payment optimisation effectively.

About Klas Bäck

Klas is the CEO and Co-founder of Pagos, a company providing actionable insight from payments and fraud data. Previously Klas was Vice President Strategy, Business Development & Markets at PayPal. Klas came to PayPal via their Braintree & Venmo acquisition where he served as the General Manager International and Payment Strategy from the very early days of its global expansion into one of the world's leading Payment Service Providers. This included building out Braintree's international operation from scratch into 48 additional countries in Europe, North America, LATAM and Asia Pacific. Before that Klas was the General Manager of North America for Netgiro, another payments processing startup he helped lead through the sales to Digital River.

About Pagos

Pagos is a 2024 Fintech Innovation 50 honouree that creates easy to use tools for complex data so anyone can be a payments expert and drive improved payments performance.

Pagos powers many of the world's leading ecommerce companies and their vendors including Adobe, Eventbrite, GoFundMe, McAfee, StubHub, and Warner Bros. Discovery (Max) to see, monitor, and use payments data more effectively. The results: increased revenue, and reduced costs while doing more with less resources.