Total payment volume (TPV) is a crucial metric for merchants aiming to succeed in the growing world of digital payment transactions. It can provide merchants with invaluable insights into transaction dynamics, allowing them to assess their business performance and potential for growth. By analysing TPV, merchants can improve their payment acceptance strategy, increase customer engagement and navigate challenges more effectively. As the payments industry continues to evolve with new trends like Open Banking and real-time payments, understanding TPV has become essential for staying ahead. This article explores TPV and why it can be a vital aspect of a merchant's growth strategy.
What is Total payment volume (TPV)?
Total payment volume, also known as total processing volume, is a metric in payments used to measure the total monetary value of all transactions processed through a payment system or platform over a specific period. This metric includes gross value of payments, regardless of the payment method used such as credit cards, digital wallets, real-time bank transfers etc.
For merchants, TPV represents the total gross amount of all payments processed before deducting any processing fees, chargebacks or refunds. It can be a crucial indicator of a merchant's overall business health, transaction activity and growth rate. For example, if a merchant processes US $100,000 in sales monthly, their TPV will reflect that entire amount. An understanding of TPV can help merchants make data-driven decisions, refine how their sales or marketing campaigns or improve operational efficiency. In today’s competitive payments landscape, monitoring TPV across various payment methods can also highlight shifts in consumer behaviour.
How to calculate TPV?
Calculating total processing volume is a simple process. To gain insights into your TPV, follow the steps below to calculate it. Depending on your goals, the period could be weekly, monthly, quarterly or yearly.
- Identify the period: Choose a specific time frame for your analysis (such as a quarter).
- Collate transactional data: Gather the total number of successful transactions your payment provider processed over a specific period.
- Sum up the total value: Determine the total monetary value of all successful transactions over the selected period and sum them up. It's important to note that TPV covers all successful transactions, regardless of subsequent refunds or chargebacks.
For instance, if a merchant wants to calculate their TPV for a quarter in US dollars, they will sum the transactions as follows:
- Transaction month 1: $100,000
- Transaction month 2: $250,000
- Transaction month 3: $50,000
The TPV for that quarter would be: $100,000 + $250,000 + $50,000= $400,000.
What is the difference between TPV and GMV
Gross merchandise volume (GMV) refers to the total transaction value of goods or services sold by a merchant. GMV excludes cancelled orders, returns and refunds. For most merchants, TPV can be greater than GMV because TPV includes all processed payments, whereas GMV typically only includes the final payment transaction value, after chargebacks or other forms of refunds. TPV and GMV are both vital payment transaction metrics, but they are not interchangeable. The key areas where they differ are as follows:
Inclusion of refunds or chargebacks
The inclusion of refunds or chargebacks is a significant difference between total processing volume and gross merchandise volume. While TPV calculates the total value of processed payments, including refunds and chargebacks, GMV typically excludes them. As a result, TPV offers a broader perspective on cash flow, whereas GMV reflects the actual revenue retained by the business.
Use cases
The use cases for TPV and GMV differ; the former measures a merchant's overall payment processing volume, while the latter measures actual sales revenue. Furthermore, they can assist businesses in determining the success rates for payment processing and the product or service sold.
What are the benefits of TPV?
Business growth indicator
TPV can serve as a business growth indicator for a merchant. By tracking your business's transaction volume over time, TPV provides measurable data on growth trends. An increasing TPV generally indicates business growth. This may also serve as an important indicator for financial institutions when applying for business loans. Financial institutions often see consistent or growing TPV as a sign of stability and profitability. A high TPV can indicate strong customer activity and when a significant portion of this volume comes from repeat transactions, it can reflect high customer engagement and loyalty. This combination is a strong signal of sustainable business growth.
Financial planning
Total processing volume can help businesses forecast revenue for future business investments or growth plans. For example, during periods of increased sales—such as seasonal spikes—reviewing your TPV can guide decisions on stock management and logistics. This ensures the business is prepared to meet demand and reduces the risk of overstocking or understocking. By aligning inventory and logistics with transaction data, a merchant can optimise sales opportunities and maximise revenue generation.
Fraud detection
TPV can be useful for detecting potential fraud by revealing transaction patterns and anomalies. For instance, a sudden or unexplained spike or drop in TPV could indicate fraudulent activity or technical issues requiring immediate attention. Collaborating with your payment provider, you can leverage these insights to implement tailored risk and fraud management strategies, protecting your business and ensuring operational integrity. Payment providers play a crucial role in monitoring such trends and advising merchants on necessary actions. Monitoring TPV over time can help identify unusual trends, such as repeated high-value transactions from a specific region or unexplained spikes in failed payments. By addressing these anomalies promptly, businesses can minimise the risk of fraud and strengthen customer trust.
Benchmark for business performance
Whether tracking growth trends or assessing payment strategy effectiveness, TPV provides merchants with insight for monitoring their performance benchmarks. By benchmarking your TPV against industry standards and competitors, you can identify areas of strength and opportunities for improvement. This data can be used to refine business strategies, enabling more informed decision-making to stay competitive in the market.
How emerchantpay can help
Whether you're an online retailer or a large eCommerce platform, closely monitoring your total payment volume helps you make informed decisions and achieve long-term growth in the competitive world of digital commerce. Understanding and tracking TPV can provide valuable insights for business growth, financial health and market positioning.
emerchantpay is a PCI Level 1 compliant payment service provider and acquirer with over 20 years of experience assisting businesses with their payment needs. Our in-house local and global acquiring services facilitate your entry into new markets, ensuring seamless payment acceptance while maximising revenue at scale.
Our in-house local and global acquiring services support seamless payment acceptance across diverse markets, enabling you to scale your operations effectively.
Contact our team of payment experts today to learn how emerchantpay can transform your payment processing.