A critical factor is often overlooked when focusing on improving the customer experience: ensuring payments go through successfully. A failed payment is more than simply a lost sale. It can lead to wider-scale revenue impacts and erode customer confidence over time.
In a recent PaymentsJournal podcast, John Winstel, VP of Optimization Product at Worldpay, and Don Apgar, Director of Merchant Payments at Javelin Strategy & Research, discussed the factors influencing authorization rates and examined how even small improvements can drive gains in both revenue and customer satisfaction.
The Four Pillars of Payments Authorization
Why do payments fail? For many reasons, actually, such as technology failures or inaccurate payment data. A payment may also be incorrectly flagged as suspicious and declined if a merchant’s fraud prevention tools are misaligned. These issues are even more pronounced in e-commerce, where the risk of fraud is higher and declined payments are more common.
Thankfully there are four primary components for optimizing payment authorization to address these issues. The first is consumer optimization, where an organization focuses on streamlining the checkout experience with a focus on the customer experience.
“In my own experience, I love it when I’m shopping at a merchant that is new to me or I don’t shop at very often and they have Apple Pay as a way for me to complete that transaction,” Winstel said. “It’s so easy to do, and you’re not having to fill in all your billing and shipping card information. It’s creating that seamless experience for consumers that is key.”
Conversion optimization—the second factor influencing payments authorization rates— ensures the merchant always maintains the most updated customer credentials on file. The third aspect of authorization optimization is risk optimization, which remains a constant challenge for many organizations.
“We’ve done some studies internally looking at how having a strong fraud authentication strategy can lead to not only benefits from a fraud savings perspective, but you also start to see a huge uplift in your issuer approval rate when you have your fraud rates below six basis points or less,” Winstel said. “You see double-digit growth in your issuer approval rates because those issuer models are viewing that traffic as being much safer.”
The fourth and final pillar of payments authorization optimization involves optimizing for cost, where we identify the most cost-effective way to route a customer’s payment. While keeping all four of these considerations in mind is difficult, the optimization process becomes even more challenging because merchants aren’t operating in a static environment. If a busy retailer has predictable periods of lower activity, they may shift gears to better meet customer demand.
“Slower response times coming in from certain networks may deprioritize those routing paths over faster paths,” Apgar said. “Even though they are more expensive, it will produce better throughput at the point of sale and ultimately a better customer experience. It’s a dynamic environment because you can’t ever optimize in a static prioritization.”
Lightening the Workload
Fortunately for merchants, effective tools do exist to combat complex authorization rate optimization and take care of the heavy lifting. For example, to optimize the conversion aspect, retailers could employ account updaters which utilize artificial intelligence (AI) to ensure the merchant is using a customer’s most current card information.
Similarly, network payment tokens—the digital identifiers issued by credit card companies to replace primary account numbers—can be leveraged to obtain the most accurate card data.
Another component of conversions is the retry process. In many cases, retrying a payment could result in success but many organizations don’t have the bandwidth to continually retry payments. This is where AI can play a role by powering a smart retry system that can mitigate many payment failures.
When it comes to optimizing costs, debit routing solutions can identify the least expensive rail including PINless routing, which leverages regional debit card networks so customers don’t have to enter their PIN at checkout.
Fraud management tools are also critical, but organizations must balance fraud prevention with authorization optimization to minimize false positives. Additionally, merchants need tools that account for their specific regulatory environment—and even issuers’ individual preferences.
“Do they want to see 3DS authentication?” Winstel said. “Would they rather see a TRA exemption? And if you do have those declines when you send an exemption through, what is your acquirer doing from a soft declined perspective? Is it a hard decline that the customer sees or is it something where it just goes back and sends it through for 3DS authentication?”
“Leveraging those tools can ensure that you’re having the highest auth rates and you have a plan for recovering revenue,” he said.
Data at Their Disposal
It’s somewhat baffling that one of the most important tools merchants can leverage is data, yet many of the largest retailers only have access to their own datasets. Using a payments authorization solution can quickly open more doors.
“Our fraud models are informed by the over 20 billion transactions that we see across the breadth of Worldpay, and that can create such strong impacts in terms of managing fraud—being able to pick up and detect those fraud attacks before it hits those merchants,” Winstel said. “They have that benefit of this huge ecosystem, which we can also take into account to understand issuer preferences.”
With a broader spectrum of data at their disposal, merchants can make more informed decisions and build stronger models.
“The logic—whether it’s machine learning or AI—that drives the real-time reprioritization of the attributes of the transaction can be done in a predictive manner, as opposed to a reactive manner,” Apgar said. “That has got a lot more potential to drive stronger performance overall than an individual merchant just doing it with their own data.”
Uncovering Additional Revenue
In the simplest of terms, higher authorization rates lead to greater revenue so investing in a payments authorization solution should be a no brainer.
“A higher auth rate translates into higher sales,” Apgar said. “Better risk management translates into lower chargeback losses. Every one of these components has a return on investment that can be calculated from it, so it’s easy to see the results. But you can go beyond that and say what is the halo effect on my brand? Everything feels so much better when a customer has a better experience at checkout.”
Yet many merchants are hesitant to take the plunge on payments authorization platforms because they don’t fully understand the importance of authorization rates. Even a modest 1% to 2% gain can have a significant impact on a merchant’s net revenue.
Still, customers are the highest priority. And can you truly quantify the loss of a customer? Hint: it’s big so don’t chance it.
“Ensuring the highest possible authorization rates can lead to better overall customer satisfaction,” Winstel said. “The cost of losing a customer is just so expensive, and then you have to try to attract new customers. Anything that you can do to make sure that you have the most up-to-date credentials on file is so key.”
