Today’s technical decision-makers face pressure to increase the company’s revenue while keeping risk low in the consumer checkout process. If a customer’s legitimate payment transaction gets declined because a merchant’s tech isn’t advanced enough, this has the potential to result in a lost customer. One of the most important parts of streamlining your payment process and increasing your chances of conversion is improving your payment authorization rate.
That’s why enterprise merchants must focus on optimizing both the front-end and the back-end in the payment ecosystem. The end goal is to improve their bottom line by increasing customer loyalty.
Typically, there’s not much sellers can do if their customers’ transactions are declined on the card-issuing side. But it’s possible to help reduce these false declines by working with a good payment partner.
To learn more about the importance of efficient payment authorization, PaymentsJournal sat with Sandipan Chatterjee, Head of Enterprise Payments Optimization & Growth at PayPal, and Brian Riley, Director of the Credit Advisory Service at Mercator Advisory Group.
The Importance of Smooth, Efficient Payment Authorization
Shoppers expect a simple and seamless checkout experience at their fingertips and it’s something they’ve come to expect to happen without much thought or effort. But many businesses overlook this critical piece of the customer journey and focus largely on the front-end experience and not enough on the back end.
Riley noted that the payment authorization process is where the rubber meets the road. “Is the card good? Is the buyer the person who they say they are? And will it survive the authorization network? That’s an area that PayPal has always been strong in.”
Payment authorization rates must always stay top of mind for a merchant. The higher the authorization rate, the greater likelihood of repeat customer transactions, which results in higher business revenue.
Typically, if a merchant wanted higher payment authorization rates, they would accept more risky transactions. If they wanted lower risk losses, they would be more restrictive on their approval rates.
However, as Chatterjee noted, the ideal is to be able to give merchants the best of both worlds. High approval rates with low-risk loss rates — all without compromising a good customer experience.
When Authorization Rates Are Poor
Anything that adds friction to the customer experience, such as a failed charge, can negatively impact share of wallet and customer loyalty. This friction can create a very frustrating experience for the customer. The customer will either select another form of payment and go through the same authorization and approval process again, or the business will lose the sale, resulting in an unsatisfied customer.
Chatterjee said that failed charges can have a significant impact on consumer behavior. “One study found that 44% of shoppers with a charge declined stopped or reduced shopping entirely with that retailer. That’s a huge hit to businesses that are not able to provide a frictionless experience to their customers.”
A declined charge can impact the entire customer journey, making the transaction less profitable in the short run and more costly in the long run. Riley said, “It certainly makes you think twice about going back to that merchant or even using that card again.”
Improving Authorization Rates
Because the merchant is not actually handling the payment loss, selecting the right payment partner is key. For a decent-sized business, the 2% increase in approvals could translate into millions of dollars of unrealized revenue.
Payment companies are using new tools and data to help businesses reduce the number of failed legitimate payments and boost their authorization rates. These include transaction retry logic, stand-in functionality, and algorithms to help better manage life cycle events whenever there are issues within the payment ecosystems.
For example, Chatterjee explained PayPal’s strategy for this. “PayPal’s extensive network of partnerships provides the company with insights into card behavior and adoption rates across the broader ecosystem. PayPal can then use these insights to identify opportunities to help improve authorization rates and drive increased revenue for its partners.”
An example is PayPal’s partnership with BetterMe, a leading behavioral healthcare app publisher, that recently partnered with PayPal for a payment solution to create a secure, seamless multi-platform online experience across devices. Chatterjee said, “With PayPal’s partnership, BetterMe increased their overall approval rate by 6.4%. As a result, they were able to attract a significant number of new clients — BetterMe’s product conversion rate almost doubled.”
New solutions combine machine learning, artificial intelligence, and real-time decisioning to more accurately help determine whether a transaction is legitimate or not. Accurately making such a determination requires access to an immense amount of data.
There is also economic uncertainty right now in turn, optimization will continue to grow in importance. Focusing on improving payment authorization rates for your customers is one easy way to build an economic buffer for the next few years.
Network Tokenization is Key to Authorization Rates
Network tokenization is a key enabler of payment authorization rates. With this, merchants can achieve the right balance between security and fraud management and a seamless customer experience.
Network tokenization works by creating a unique credential for a card that is separate from the number imprinted on a physical card, which can be used for conducting transactions. The benefits of this include improving the behind-the-scenes processing of each transaction, known as credit card storage. Network tokenization enhances security by making credentials more fraud resistant, and it offers greater brand recognition and trust.
For example, instead of using the 16-digit number that’s inscribed on the card, PayPal will generate a unique credential to use when conducting the transaction. This way, if a card is lost or stolen, the consumer’s identity is not tied solely to that physical card but can be easily reissued or identified from their assigned token.
Authorization rates must always stay top of mind for a business. By selecting the right payment provider, merchants can achieve higher authorization rates and reap the reward of increased revenue.