Focusing on uplifting your success rates is a key facet of a great revenue optimization strategy. On this episode of Payments Dialog, we interview Fareed Jawad, Vice President of Revenue Optimization at Spreedly. Fareed gives great insight on tactics to use to drive your revenue optimization strategy.
We cover optimization topics such as: failover routing, how geography can influence your optimization strategy, how a merchant's industry can affect success rates, network tokenization, and more.
Questions about your success rates, and how Spreedly can help with your Revenue Optimization strategy? Reach out to see how we can help.
Peter Mollins: It's great to connect with you, and welcome to all of our viewers. Great to have you here again on Payments Dialogue. Today, I'm very excited to be talking to a colleague of mine, Fareed Jawad, who is Vice President of Revenue Optimization here at Spreedly. Farweed has had just a tremendous career in the payments world. He's actually started at Verifone, helping to develop some of the earliest payments gateways, and then he's had an illustrious career going through places like Flipkart and Amazon, Grab, and Ola. So, real excited to have you here, Fareed.
Fareed Jawad: Yeah. Excited to be here, Peter. Thanks.
Peter Mollins: Absolutely. Now, what I was hoping to do is... I gave a little bit of an overview of your background, but I'd love to hear a bit more from yourself about your experience and what you've learned about payments in general.
Fareed Jawad: Sure. I've been in the payment industry for a long time, since the late '90s. Worked out of the Valley with Verifone, building out the earliest flavors of the payment gateways, graduated from using SET as a protocol for payments to SSL, which is I guess the de facto standard for all e-commerce today. I've been on most sides of the payment life cycle on the acquiring and issuing cards, e-wallet, account-based payments. I'm very excited to be in this industry, and happy to be here at Spreedly, helping solve the next set of problems for our customers, and improving the overall payments experience for their customers.
Peter Mollins: That's great. You started here at Spreedly in 2019. Can you tell me a bit about what your focus is here at Spreedly?
Fareed Jawad: Sure, absolutely. As a part of product development here at Spreedly, my key focus is to drive revenue optimization for our customers, and we'll get to what that means in just a bit. But at a high level, we want to be able to help our customers improve their payment conversion rates, be able to help our customers improve their payments experience with their customers, and basically drive greater revenues for them.
Peter Mollins: Okay. Okay, great. You mentioned their revenue optimization, but what is it that people are trying to do in order to optimize their revenue in a payments context?
Fareed Jawad: Sure, absolutely. At a high level, there are two key metrics that most customers, or payment managers with our customers, are measuring literally on a daily basis, that is obviously a larger roll up into a monthly or annual trend. But essentially, your payment success rate as a merchant talks about how many of your transactions that you actually successfully converted to successful authorizations, or sales. That is a key metric that is at the heart of revenue optimization. All things being equal, the other aspect of revenue optimization is to minimize or optimize costs on payment. Today, that is typically anywhere between 1% to 2% or more, for a lot of merchants. Being able to drive the best cost mechanism for these merchants is also part of revenue optimization.
Peter Mollins: Okay. Can I just get you to define real quick, success rates, just so that people are familiar what success rates in a payments context means?
Fareed Jawad: Absolutely. It's great that you brought up this question, because different actors and players in the payment life cycle measure payment success rates differently. For us here at Spreedly, we are very clear that the payment success rate is as our customers, the merchants, see that number to be, right? Essentially, for all transactions attempted at a merchant site through our PCI compliant infrastructure, our frame's in SDKS, is the point at which we start counting success rate, and every drop-off at different steps along the way until that transaction actually gets authorized, is included in that calculation. Typically, a gateway may measure a success rate for a customer from the point at which the transaction actually hits their end point, but we understand that it is much more than that, and it is the whole end consumer journey from checkout through successful completion.
Peter Mollins: I mentioned... When you think about success rates, speaking as someone that's been on the merchant side of the world, it means more than just, "I'm getting more revenue now." It also has to impact customer experience and other factors too.
Fareed Jawad: Absolutely. Payments is an integral part of the entire checkout flow. Regardless of the kind of goods or services that as a merchant you provide, you want to be able to measure your customer satisfaction, and the payment flow plays a huge part in that, right? There are a lot of customers who abandon carts, never to come back because of a very poor payment experience. Right?
Peter Mollins: Mm-hmm (affirmative). Mm-hmm (affirmative).
Fareed Jawad: While it may not necessarily be a core part of what the merchant is offering as a good or a service, it is significantly important enough to keep that in mind. We aren't just a number, it is the whole customer journey and experience.
Peter Mollins: Okay, great. Now, you mentioned a few different metrics for measuring revenue optimization, but it also sounded like you were talking about a few different ways to optimize revenue. So, are there certain buckets that you would put functionality in for revenue optimization?
Fareed Jawad: Yes. There's a few things here, right? One is a baseline theme that I think you've spoken about in earlier conversations as well, which is more than one gateway is better, and we've gone through the reasons around that, especially as you get into developed regions, it becomes a more important point to consider. Payments is highly nuanced. Certain gateways work better with certain cards, with certain issuing banks. One of the key buckets that is really anchor case for revenue optimization is what we call is intelligent routing or dynamic routing. This is the ability of Spreedly to be able to route a customer's transaction to the best possible gateway, given the various characteristics of the transaction, including the payment method being used. If it's a card, the card logo. Is it a Visa or a MasterCard, is it a credit card or a debit card, and so on.
Fareed Jawad: We basically factor in multiple such signals and use an up-to-date computation of gateway performance to determine which gateway to route the transaction to. That is an important bucket in revenue optimization. The flip side of that is the cost angle that we spoke about, but there's more to it as well, right? So for example, the ability to salvage declined transactions. Certain transactions get declined for certain reasons, and Spreedly would like to be able to help their merchants figure out which transactions are worthy of retries, have a strategy in place that would allow customers to retry certain transactions a certain number of times, at various times of the day, day of the week, or day of the month, without significantly increasing their risk exposure. Because a lot of times, if retry is not done right, you can certainly increase your exposure to fraud and risk.
Peter Mollins: Got it. Okay. That makes sense.
Fareed Jawad: Yeah. Right.
Peter Mollins: Now, you had mentioned about that intelligent routing. It sounds like a key component or a prerequisite for that is the ability to connect into multiple payment gateways.
Fareed Jawad: That's correct.
Peter Mollins: Otherwise, what are you routing to, [crosstalk 00:09:17] I imagine?
Fareed Jawad: Absolutely, absolutely. Intelligent routing, beyond determining which is your best gateway, is also a great mechanism to help our customers provide high availability to their end consumers by ensuring that we route our transactions to gateways which are available, up and running. There are gateways that go into degradation sometimes, so we would at that point not route transactions to gateways that are degrading in performance. At its most basic level, you've got failover routing. So, if you try and route transaction to a particular gateway due to certain volume commitments, the gateway, or whatever the reason is, and that gateway is degrading or is down, the transaction fails over to an alternate gateway that we have set up with our merchant.
Peter Mollins: Right. Okay. That makes sense. Now, Spreedly is really well adopted in Latin America, and now Europe and North America, really around the world, but are there ways of thinking about revenue optimization differently based on where you're looking at geographically?
Fareed Jawad: Certainly. In fact, geography plays a huge role in determining your optimization strategy. In developed markets like the U.S. and North America and the E.U., the set of problems that merchants face are slightly different from the problems that customers would face in Southeast Asia or in Latin America. Our optimization strategy for these merchants would obviously take into consideration their geographical location, the ability to accept international transactions, and so on. Yeah, the problems are quite different. For example, in the U.S. and in Europe, a merchant may be more interested in optimizing on costs, because they've actually got a fairly good baseline of success rates and they're in the high 90s. Whereas in countries in Latin America, merchants operating there actually want to significantly ratchet up their success rates, because you've got a huge variation depending on the country that you operate in, the gateway that you're connected to, who your acquirer is, what's the payment method being used? So, the focus there and strategy there had would be quite different from merchants in the U.S., for example.
Peter Mollins: Okay. You obviously mentioned geography and a few other items like card type. What about based on industry of the merchant? Is there an opportunity for optimization there?
Fareed Jawad: Certainly. In fact, the card networks have built this mechanism many decades ago, and each merchant is really aligned with a particular MCC code, or merchant category code, that relates to the line of business that they operate in. Based on that, there are a bunch of rules and there are a bunch of best practices that need to be adopted. There's also a different risk profile depending on the category of goods or services that you sell as a merchant. So, optimization factors all of that into the equation as we develop an optimized strategy for our merchants.
Peter Mollins: Okay. Okay, terrific. Now, going back to one of the types of routing you mentioned, there was the intelligent routing where it's almost like it's proactively routing transactions, but then you also mentioned failover routing, which sounds more defensive. How would you differentiate between those two types of routing?
Fareed Jawad: Right. The way we've looked at this in the past, and the way we continue to do so is that, while we dynamically and intelligently route a transaction to the best possible chance of success for a transaction, a defensive strategy in terms of routing based on a failover is something that needs to be in place to counter some of the blips that you see. With gateway, sometimes it may not be the gateway, it may be the connection. It may be a whole bunch of other degrading factors. It could be potentially a fraud attack, and being able to flip over to a gateway that is performing well and without duress, is an important capability to have. It's not possibly as interesting as intellectually routing transactions to your most optimal gateway, but it is a capability that needs to be in place to minimize risk. Yeah, yeah.
Peter Mollins: Yeah. Yeah. It sounds important. Especially, I imagine a merchant might want to use multiple gateways just to experiment with the performance of different gateways, and if there's one that's potentially new or less tested, having the ability to failover from that to another would be an incentive to be able to experiment with those other gateways.
Fareed Jawad: Absolutely. Not just failover, but also having the ability to send a small percentage of their transactions with a new gateway as they figured out how well it works for them, and allows them to gather significant data around gateway performance and other indicators. It's certainly a useful feature to have.
Peter Mollins: Okay, great. Going back to... You'd mentioned about card types.
Fareed Jawad: Yes.
Peter Mollins: Can you explain a bit more about why BIN had been, in card types, useful for when you're thinking about intelligent routing?
Fareed Jawad: Okay. Yes. Payments is a highly nuanced industry, and the ability of... Spreedly has to be able to determine a payment method based on a BIN, whether it's a credit card or a debit card, determine which is the issuing bank. It's really important because debit cards work slightly different from credit cards. They're more likely to run into an insufficient balance scenario and have a transaction be declined, for debit cards compared to credit cards. In some regions you've got certain gateways that have built out direct integrations with certain banks for their debit card platforms, and being able to leverage all of this is important. Therefore, knowing more about your transaction, and your payment instrument, and whether it's a debit card or a credit card, or whether it's a Visa or a MasterCard, is really important in figuring out and intelligently routing the transaction to the right place.
Peter Mollins: Okay. Okay, great. You'd mentioned about the value of routing transactions to different gateways. How does Spreedly actually help in that regard?
Fareed Jawad: Right. Because Spreedly has got so many integrations with our downstream payment gateways, and we've built out these partnerships over the years. We've got most current data on their performance. We monitor every gateway's up times and down times and performance degredations. We have the intelligence in place to determine, using these gateway characteristics as well as the transaction characteristics, such as the payment instrument being used, and figure out which is the best match for the merchant, based on their existing gateway relationships, and use the most relevant eligible gateway to route the transaction to.
Peter Mollins: Okay.
Fareed Jawad: I hope I answered that question for you, Peter.
Peter Mollins: Yeah. Yeah, absolutely. Similarly, not only from a success side, but also you mentioned from the cost side as well.
Fareed Jawad: Absolutely. Absolutely. Let's say, if you have two gateways both operating at a 93% success rate for a Visa Classic debit card, I may want to route the transaction to the gateway that is probably 10 basis points cheaper, and therefore help the merchant have... It's basically money for jam for the merchants.
Peter Mollins: Right, right.
Fareed Jawad: Yeah.
Peter Mollins: Okay, great. Now, one thing that I've been hearing more and more about is network tokenization. Does that fit into your plans around revenue optimization?
Fareed Jawad: Absolutely. Networked tokenization is really important to optimize payments. In fact, the card networks have been driving a lot of adoption of network tokens. It's a great way to keep Evergreen, non-PAN information to actually authorize a transaction based on the network token. Actually also, because the tokens are Evergreen, you possibly are good with or... Probably signing up for Account Updater for example, because gateways ensure that these tokens are kept up-to-date in case of a renewal or a card replacement. A token for a given merchant, for a given payment instrument, is going to stay current. And because the underlying theme around revenue optimization is to maximizing our customer's, which are merchants, transactions and conversions, network tokenization definitely has an upside, 2% to 4% upside, in terms of success rate, and that's certainly useful and is an integral part of revenue optimization.
Peter Mollins: Okay, great. Now, I've heard another term as well that sounds like it matches up with revenue optimization, and that's this idea of payments orchestration. Would you consider the idea of orchestrating these various payment services to be... Is that what payments orchestration is to you?
Fareed Jawad: Yes, absolutely. In fact, payment orchestration as a layer has been around for some time in the payment switch world, and in the payment hub world. From a gateway perspective and e-commerce transactions perspective, aligning the most appropriate workflow for our merchants, depending on all the things that we talked about till now, right? Geography, type of payment instruments that they use, gateways that they have signed up with, the performance of these gateways, allowing us to dynamically route transactions to the best gateway available, really actually falls into orchestration as a realm. So I would say, yeah, it is pretty much, if not exactly, the same thing.
Peter Mollins: Okay, got it.
Fareed Jawad: Yeah.
Peter Mollins: Now, I imagine as you're doing all this orchestration and optimizing revenue in your payment space that you're collecting, both Spreedly and also the merchant themselves, they're collecting a lot of data. So, could be decline reasons, it could be other kinds of information that helps them to optimize, but what would you do, or what would you recommend to a merchant, or how would Spreedly help the merchant by using that data?
Fareed Jawad: Certainly. Because Spreedly has a whole bunch of merchants that we support processing for, and because we've got a whole bunch of downstream gateways that we're integrated into, it's possible for us to leverage the data that we gather as part of the transaction flow, to help our merchants figure out how they're doing in the grand scheme of things. Are they the top percentile or are they in the bottom percentile, without really sharing confidential information. It also helps us get back to our merchants with their top declined reasons, and maybe set the strategies around mitigating some of those declines, through a variety of means, including either suggesting an alternate payment method, or maybe having their acquirer have a conversation with their issuing bank to figure out if there has been a history of charge backs for that merchant, for example. It's very likely that certain issuers may have put them through a whole bunch of additional checks, and that could be leading to a lot of declines. So, it helps set the stage to have those conversations, right?
Peter Mollins: Right.
Fareed Jawad: And whether or not those conversations happen depends on the relationship between the merchant and their gateway and the acquirer.
Peter Mollins: Okay. I mentioned, because of Spreedly's agnostic position in the market, our ability to collect the data, to collect massive volumes of data that help way beyond the scale that an individual merchant could collect, and I imagine that's an important value for merchants that work with Spreedly?
Fareed Jawad: Certainly. If I were to put myself in the shoes of a merchant, let's say, selling books, I would probably be really interested to hear from Spreedly on where I stand in terms of my payment access rates, without a key metric in terms of other booksellers, right, who are keying off the merchant category code here. I would also be interested in probably understanding that, for the geography that I operate in, how am I doing, right? Am I right up there with the leaders, or am I somewhere in between, or at the bottom, right? It helps me, as a merchant, figure out and implement changes and new strategies to help me stay current and relevant.
Peter Mollins: Right. Okay. Now, staying with the shoes of the merchant on, how would you want to measure success from optimization if you're back in a merchant's seat?
Fareed Jawad: Sure. For me, it's very straightforward. Let's say I'm a payments manager at a merchant location. If I'm able to go back and have this conversation that says that, "Hey, since I signed up with Spreedly for revenue optimization, I've actually seen a 3% improvement in my conversion rates," and at scale that could be a very big number, right?
Peter Mollins: Mm-hmm (affirmative).
Fareed Jawad: So, I think that certainly is a key factor. Also, being in a position to say that, "Hey, I'm actually able to overall save about 15 basis points on an annual basis in terms of my costs." That, in turn, can actually add up to a pretty significant savings for me as margin.
Peter Mollins: Okay. Terrific. Well, this sounds really compelling. I know that there are some optimization capabilities that Spreedly already is offering, but yeah, it sounds like there's another wave that's coming soon. So, what should customers, or potential customers, what should they do to try and take advantage of the next wave?
Fareed Jawad: Absolutely. There's some features that I think are already available out of the box that merchants enjoy, including the use of Account Updater, for example, but for a larger revenue optimization push, we are open to signing up merchants for a pilot that we're rolling out in the first half of this year. We anticipate making this generally available in the second half of 2020, but yeah, merchants need not wait for that. They can speak with their account representative and try and get on the pilot program, so they can start reaping the benefits right away.
Peter Mollins: Got it. Well, great. It sounds like a lot of benefits for sure, for merchants. It's been really interesting, Fareed. Really enjoyed the conversation. So, thank you very much for joining in the Payments Dialogue today.
Fareed Jawad: Thank you, Peter. My pleasure entirely.
Peter Mollins: Terrific. Thanks.