Declined payments can be frustrating - for both you and your eCommerce customers. They affect customer experience, conversion rates, and your revenue. And yet many companies feel that there’s nothing they can do to prevent them.
In reality, though, you’d only be half right. Payment declines are indeed an important part of a bank’s anti-fraud defences - and so there will always be some declined payments (and that’s a good thing). But on the other hand, your brand does have the power to actively improve approval rates of legitimate payments. And, as part of our series on optimising online payment, we’re sharing how to do just that.
Here, we’ll talk you through the details of the authorisation process and dig into the benefits of reducing declines. And we’ll show you what you can do to improve your authorisation rates, as well as what CCV can do to help.
By the way, if you missed any of the previous articles in our series, find them here:
- How to Optimise Online Payments
- How to Improve the User Experience (UX) for Online Payments
- Optimising Authentication in Online Payment: Balancing Security with Friction-Free Transactions
- How to Optimise Online Payments for International Customers (Coming Soon)
But, for now, let’s talk about payment authorisation.
How Does Payment Authorisation Work?
Payment may seem straightforward for the customer - at least that’s the aim. But, behind the scenes, it involves a host of different players-your eCommerce brand, issuing and acquiring banks, payment service providers, and digital wallets - all of which are responsible for different parts of the payment process.
Payment authorisation is the final step in this process, and it’s the issuing bank that ultimately makes the call on which payments are approved or declined.
Here’s how the process works:
- Payment starts with the customer. When a payment is initiated, customers submit payment details, the amount of the transaction, and other data points (such as billing address, or the location of the transaction). This information helps issuers assess whether the payment should be authorised.
- Authentication. Based on the data they provide - and that’s required by strong customer authentication (SCA) - customers are then authenticated. This contributes to the transaction’s approval, but it’s not the final word.
- Ultimately, authorisation or decline. Based on the information supplied during authentication - alongside other merchant or transaction data - issuers authorise or decline the transaction.
- If payment is declined, merchants then receive a decline code, which explains why the transaction has been declined. While there are many different decline codes, they could tell you some of the following:
- The customer has insufficient funds
- Their card has been blocked
- There are signs of fraud in the transaction (such as unusual location or spending patterns)
- Other technical reasons.
Really, though, it’s the false declines that cause the most approval problems for eCommerce brands. According to one study, for every dollar in fraudulent payments that’s prevented, $25 in legitimate transactions are falsely declined. It’s these that cause the frustration, and it’s these that you can target to improve your authorisation rate.
Why Optimise Your Authorisation Rate?
While payment approval may feel beyond your control, there’s actually a lot you can do to improve them. That’s crucial, because false declines can have a serious impact on your business success:
- They are a revenue leak. According to some estimates, 2.6% of eCommerce brands’ revenue is lost in false declines.
- They knock your conversion rates. Every declined transaction is a potential failed conversion. While customers often retry payment - either with the same or a different payment method - that’s not guaranteed. And if they don’t, you’ve just lost a customer.
- False declines affect customer experience. Even if payment is ultimately approved, it has still had an impact on your customers. The problem is that they’re much more likely to hold your brand responsible than their bank.
- Ultimately, customers may not come back. In the most serious cases, a false decline may put off a customer for good. According to Clearscope and Sapio, over a third of customers will never return to your site after a failed transaction.
It’s true that you don’t have the power to reduce payment declines to zero - and nor do you want to. But finding ways to optimise authorisation rates on legitimate transactions is really in your interest.
How to Boost Approval Rates
So, what can you do to ensure as many legitimate transactions as possible are approved? Here are some ideas to work with.
Get Access to Authorisation Data
Payment authorisation is complex and there are many factors that can sway your authorisation rates. The trouble is that you might not know exactly what these factors are.
Gaining access to data on your authorisation rates can be key to understanding what’s causing so many false declines. For example,
- You can see when most declines happen. This could be certain days of the week, or at particular times of the month.
- See which issuers or transaction types are associated with the highest decline rates. These could be international or high-value transactions.
- Analyse why declines happen - for example, by tracing common patterns in your decline codes.
This data is an important starting point for identifying opportunities for authorisation optimisation. At CCV, we can advise you on how best to gain visibility on it. Get in touch to find out the best option for you.
Tweak Your Payment Processes
When looking at your data on authorisation rates, you might notice some patterns. There could be certain days, for example, on which customers are most likely to have insufficient funds. Optimising your authorisation rates means changing when and how you charge your customers to reduce the chance of legitimate transactions being declined.
Ultimately, be led by what your data tells you. But you could try some of the following:
- Change up payment plans on recurring transactions. If you typically charge subscription fees annually, try them monthly or weekly instead. This might reduce the chance of declined transactions on large fees, for example.
- Experiment with payment retries. Right now, you might be automatically retrying failed payments every week. But this might not actually be the best option for you. Look again at your data and see when payment retries might be better processed.
- Use pre-authorisation to check funds in advance. When a customer places an order, merchants can temporarily block funds in their accounts to ensure payment can be captured in the near future. This can be a smart way to reduce failed transactions due to insufficient funds.
Manage International Transactions Effectively
Payment declines are more frequent on cross-border transactions - and most often on payment cards issued by banks in countries deemed ‘high-risk’. But there’s a bigger problem here: transactions made on internationally issued cards are often higher value than those on cards issued locally. And if these keep being declined, you’re missing out on larger payments.
You have two options to make international transactions more likely to be authorised:
- Set up local banks in local currencies. That means having an acquiring bank in every territory in which you operate. However, this can be expensive, complex, and often makes administration difficult.
- Use an international payment services provider. PSPs like CCV can help manage payments across currencies - and bring down the risk of false declines.
Optimise Authentication - and Reduce Fraud
It’s an obvious one, but if your eCommerce site is processing a high number of fraudulent transactions, your decline rate is likely to be much higher.
The trouble is that that’s true for your chargeback rate too. If too many customers request reimbursement for fraudulent payments, issuing banks are much more likely to be suspicious. And that means decline rates climb ever higher.
As a result, ensuring your authentication processes work as they should is key to boosting authorisation rates. How can you do that? Start by returning to our article on optimising authentication during payment. Meanwhile, two essential tips are:
- Ensure you are SCA compliant. Strong customer authentication (SCA) is the EU-mandated authentication standard for online payments. It’s also important for providing banks with all the information they need for authorisation.
- Use digital wallets. Apple Pay and PayPal offer a payment experience that customers love and are familiar with, while using the rigorous authentication checks demanded by SCA. At the same time, by offering much more data in transactions than other payment pathways, digital wallets help improve approval rates too.
Communicate with Your Customers
Finally, keeping your customers in the loop with what’s going on with their payment is crucial. It may not always affect your authorisation rate, but it will improve their experience.
Here’s what you can do to help.
- Pre-empt authorisation errors. If your approval data shows that many international payments are declined, you can advise customers to permit foreign transactions with their issuer before making the transaction. This might prevent frustration for them, and reduce poor authorisation rates for you.
- Reach out after payment declines. You don’t want to leave customers in the dark. So you can let them know as much as possible about their transaction with automated emails that help you maintain goodwill when you’re working at scale.
- Let customers choose their preferred billing day. This way, you can be more confident that they have the right funds in the bank to pay.
Use a PSP that Can Help
CCV is a leading payment services provider. That means we make managing, authenticating, and processing payments easier for you. And, yes, that means helping you boost your authorisation rates, too.
Here’s how we can help:
- We give you visibility on your authorisation data, and help you understand your best opportunities for optimisation.
- We can facilitate international transactions for you. We’ll make it easier to manage your international market, by collecting cross-border payments on your behalf.
- We’ll help you monitor transaction fraud - to keep your business and customers secure.
- We can provide advice on preventing and minimising chargebacks, so you don’t lose revenue through fraudulent transactions.
We work with thousands of companies across Europe to make payment happen - securely, easily, and most profitably. Get in touch to find out how we can help you too.