Merchants today have never had more choices when it comes to routing their transactions. There is significant opportunity to optimize routing payments with options like Network Payment Tokens, PINless routing, and Real-time Account Updater – but how does a merchant know when to use which option? .
To learn more about how merchants can understand the trade-offs between transaction routing options and how that impacts their goals, PaymentsJournal sat down with Jason Harding, Principal Product Manager at Worldpay by FIS, and Don Apgar, Director of Merchant Services Advisory Practice at Mercator Advisory Group.
The many paths to payments optimization
Before merchants can optimize payments, they need to establish their end goals. Much like when going on a road trip, knowing the destination is necessary to figure out the best route to get there. While the “destination” or end goal for Merchant A may be to increase conversion and achieve the highest approval rate, the destination for Merchant B could be to decrease fraud risk. Meanwhile, Merchant C might be aiming to lower costs.
Achieving optimization can look vastly different depending on a merchant’s specific goals. “Optimization is a funny word because it doesn’t mean anything by itself. You can optimize for risk. You can optimize for cost or conversion. But just optimizing doesn’t tell you what your end goal actually is, and the same is true for the term orchestration,” said Harding.
The trade-offs of transaction routing options
There are also trade-offs to consider when prioritizing optimization goals. For example, a merchant focusing its efforts on preventing fraudulent transactions could simply stop taking payments. Without any transactions, no fraud could occur. “But [the] conversion rate is going to be 0%. So, the goal is, how do you find the balance of what’s most important to you?” Harding continued.
The answer to this question varies from merchant to merchant. Different merchants have their own comfort levels when it comes to acceptable risk level and conversion. Additionally, merchant goals are affected by external factors and may change over time.
“When you look at optimization and orchestration, part of the challenge is maintaining that balance. You may put an algorithm in place to start, but as you go into the holiday shopping season you may want to tweak that algorithm. Maybe you want to put a little more emphasis on conversion and a little less emphasis on cost as a sales driver,” noted Apgar.
Different approaches to routing transactions
Once a merchant defines its business goals, it can plot its moves to optimize transaction routing. Of course, that is easier said than done. After all, explained Harding, “there have really never been more choices for [merchants] in terms of what they could be using, how they could be improving their transactions, [and] what different variables they can pull into their transactions.” Three choices that merchants can make when it comes to routing transactions are PINless Debit, Network Tokens, and Account Updater.
Merchants have historically leveraged PINless routing for cost optimization. Evidence suggests that there is potential for approval optimization when routing PINless over signature. Flexibility with multiple routing choices for a single transaction is not dependent on any one network.
“I can also make the decision of how do I format the transaction? Am I using a network payment token, also often referred to as an EMV token or a Visa or Mastercard token?” asked Harding. For companies looking to bolster the security of their transactions, the answer may be yes. Tokenization involves replacing cardholder data with surrogates of lower value. Merchants can route non-sensitive tokens as a representation of the card number, reducing the chances of data theft while still enabling payments to occur.
Another option is Account Updater, a card updater service that increases authorizations and customer retention. By automating card updates, merchants can boost their customer retention and acceptance rates while reducing friction in the customer experience.
Merchants do not need to face change alone
While some merchants are eager to take a do-it-yourself attitude to payments optimization and data management, others do not have the capacity to do so. Fortunately, FIS offers a managed service with two approaches that can meet the needs of both types of merchants.
Merchants that want to be in control of their optimization journey still benefit from working with FIS. While FIS processes billions of transactions , individual merchants are limited to the smaller data set they have from their processed transactions. With enhanced visibility into a larger pool of data, merchants can make more informed decisions to optimize payments.
“If you want to DIY your approach and manage optimization yourself, that’s great. [FIS] can provide that bin level data to you. We can make that available so you can internalize that and make your own decisions,” advised Harding.
For merchants that are not ready to do the heavy lifting on their own, FIS offers additional support. “For the merchant that doesn’t have that capacity or doesn’t have that capacity right now and wants to get to it, it’s taking the managed solution approach of what are the best opportunities for a given transaction and what is the best routing option,” Harding added.
Addressing transaction failures head-on
When the first transaction fails, what is your plan B? A transaction that declines for insufficient funds you may want to try again – but a declined card for “closed account” may require a different approach. How do you manage these scenarios, and decide what to retry, how many times to retry, and which tools to leverage on each attempt? Optimizing retry rules based on merchant data is an improvement. “Having a retry strategy and sticking to that can help you increase conversion, whereas it’s about the ultimate end sale and not necessarily your top-line approval rate,” said Harding. But to maximize the benefit you factor in the BIN (Issuer) and decline reason code.
“You can implement solutions like Account Updater to keep your credentials fresh. You can start using PINless debit. You can start using network payment tokens in aggregate, and you’ll see some value and benefit there. And then those who have the resources to dive into that bin level data–the issuer level data–can really look to maximize their benefits,” Harding concluded. The biggest question to solve for is when to use which – and how will that change over time? You can manage all of this yourself, or leverage partners like FIS who can help.
