Optimising payment authorisation rates

Philip Harding at Cashflows explains why authorisation rates are key to maintaining cash flow

Cash flow feels like an impossible puzzle. One moment, your business is thriving; the next moment, an ’unprecedented event’ forces you back to the drawing board. You don’t need me to recall the regularity of these macroeconomic challenges over recent years, or to tell you that - for business owners - the pressure of navigating uncertainty is intense.

Many business leaders have turned to creative solutions to drive profits and build resilience. Financing plans or economies of scale have helped weather storms, while knee-jerk tactics like excessive discounting or overstocking have had negative effects.

The reality is that there’s no one-size-fits-all solution. What works for one business might not work for yours. But if there’s one change everyone can benefit from, it’s optimising payment authorisation rates.

The authorisation rate problem

A staggering six in ten (62%) customers who experience payment failures don’t try again. For businesses, this can mean vast amounts of missed revenue. For example, a £10 million revenue business losing 5% to declines is leaving £500,000 on the table annually. Improving authorisation rates by just 1% to 4% could recapture £100,000. 

Authorisation rate – the proportion of initial customer payments approved – is determined by various factors. Insufficient funds, incorrect card info, 3DS verification failure, and suspected fraud are common reasons for declines. 

Incorrect merchant category codes (MCCs) – four-digit identifiers classifying a business’s goods or services – are a common cause for declines. Payments may fail if a cardholder tries to use a card restricted to specific MCCs at a merchant incorrectly labelled as selling outside those categories.

An even bigger risk is intentionally mislabelling MCCs to try and reduce declines, which can result in large fines. What’s more, issuer fraud systems operate round-the-clock, scrutinising transactions against MCCs. When an MCC seems too broad or misaligned with a transaction’s risk profile, fraud systems become hypersensitive, making declines more likely due to mismatched risk factors.

With so many overlapping factors, it’s understandable to feel powerless over payment acceptance, but there’s a lot that can be done to improve authorisation rates. For this, we need to understand hard and soft declines.

Optimising authorisation rates

Insufficient funds, expired cards, suspected fraud, payment gateway glitches and authorisation timeouts can all be grouped under soft declines. With the right tools and partners, these are fixable problems.

Leading payment processors can identify and update outdated customer card details that are triggering declines. By enabling these automated systems, merchants can prompt customers for new card information. If built into online payment platforms, coupled with AI algorithms that predict when updates are needed, related declines can be prevented.

It’s also important to monitor soft declines for fraud triggers. Payment processors can adjust fraud detection sensitivities and thresholds to reduce false positives incorrectly flagging legitimate transactions. For example, they can increase thresholds for fraud alerts or add parameters like customer purchase history. Trusted customers can also be whitelisted to avoid repeated mistaken declines. The more intelligently fraud settings are calibrated, the fewer good transactions will be lost.

There are further ways to reduce the soft decline risk. Offering multiple payment options like digital wallets and bank transfers provides backup options if a card fails, boosting authorisation success. Giving customers flexible payment choices also improves overall satisfaction and loyalty. 

Clear messaging guiding customers through declines is also key. Providing specific reasons like "insufficient funds" and actionable next steps like "please update your payment method" is better than numerical error codes. The decline experience can be smoothed by using customer-friendly language, offering easy repayment options, and saving details for one-click retries. The smoother the experience, the more likely they’ll retry with updated details.

The common thread for these solutions is working closely with a trusted payments partner. To boost authorisation rates, ask difficult questions and evaluate the tools provided. Strive to understand the authorisation flow and address weaknesses and demand actionable, jargon-free insights that enable tangible improvements.

With the right combination of automation, AI, analytics, messaging, and collaboration, soft declines could become limited. Fixes to these root causes are attainable, and the payoff is huge: fewer soft declines mean consistently higher revenues. The effort is well worth it. By optimising authorisation rates through strategic partnerships and best practices, businesses can fortify themselves against the strongest of economic headwinds.

Philip Harding is Director of Partnerships and Account Development at Cashflows

Main image courtesy of iStockPhoto.com and Diy13