Retailers everywhere are looking for data-driven solutions to help increase sales conversions, drive revenue, and reduce risk. Let’s explore how businesses can pull the levers of “intelligent” routing, AI-enriched transaction data, and fraud detection and mitigation tools to help increase approval rates, mitigate fraud and lower the cost of payment acceptance.
Increase approval rates with intelligent authorization
Not all transactions are created equal. Costs vary based on the type of card, commerce channel, available network and even issuer rules. Card-not-present (CNP) approval rates hover around 80+%, compared to card-present figures of 95%+, depending on the industry. That said, an incremental lift of your approval rates can have a significant positive impact on revenue.
The good news is that there are opportunities to optimize commerce at every step along the transaction path. Managing transaction routing properly across the payment lifecycle can increase approval rates by up to 5%, while use of secure network tokens can save 10 basis points per transaction and lift authorization rates by an incremental 2%. Here are a few ways authorization optimization and network tokens can reduce both card declines and passive customer churn:
- Before sending for approval – Expired cards can result in cart abandonment and lost sales. Keeping cards on file up to date will reduce friction for future sales, especially for customers on recurring and subscription payment plans. Utilizing a token to convert stored card-on-file (COF) payment methods will help ensure that network tokens are available for use in COF transactions.
- During transmission – The use of network tokens in card-on-file authorizations decreases declines related to outdated credentials, increases overall approval rates and provides security and fraud reduction benefits.
- At the time of authorization – Enriching data to configure authorization settings aligned with a card issuer’s logic will help maximize approval rates.
- If there’s a decline – The outcome of declined transactions can be turned around by instantly retrying the authorization using different message parameters.
>>> Best Practice: Partner with a full-stack acquirer that has connections to multiple processing endpoints and extensive issuer-level data to benchmark and measure performance by MCC, BIN, card and MID. Make sure the partner can utilize machine learning technology to determine whether to use a network token or the PAN to achieve higher approval rates based on card issuer and other factors. Verify that your token requestor, such as Fiserv, can provision network tokens in the background to eliminate latency issues that could negatively impact authorizations.
Lower costs with dynamic debit routing
Merchants have an opportunity to optimize the cost of debit transactions based on available networks. In general, if you can prompt for a PIN, you can save money on the transaction. In verticals such as grocery and quick service restaurants (QSR), debit accounts for 50% - 60% of total transactions. Dynamic debit routing operates behind the scenes and lowers the cost of debit acceptance by about 20 basis points. Here’s how:
- Debit transactions can be processed in person or online via connectivity to a nationwide network of debit platform providers such as STAR®, Accel, Pulse and NYCE.
- Dynamic routing algorithms determine where to send the transactions depending on the network, fees, approval rates and other factors.
- The merchant—or the acquirer on the merchant’s behalf—sets the rules and, based on the card that’s presented, the transaction is automatically routed to the most optimized network.
>>> Best Practice: Choose a partner that offers a managed debit routing solution that automatically analyzes the data and selects the most cost-effective network for routing from any channel—in store, online and mobile— to ensure the lowest rates. Work with a single-source provider like Fiserv that can support cost-optimized routing on virtually all U.S. networks. Verify that your acquirer can customize routing preferences aligned with your goals and preferences.
Increase approvals and reduce write-offs through fraud detection
Mitigating fraud while not turning away legitimate buyers can be a balancing act. False declines, whereby good customers are turned away, occur in about 10% of all CNP transactions. The cost of actual fraud averages 5-7% of the total cost of payment, and that’s before write-offs and chargebacks.
The right fraud detection tools have an immediate positive impact to detecting fraud before a purchase, while maximizing approval rates for good customers. The result is better approval/decline decisions and a better customer experience. Here’s how:
- Customized AI-driven fraud models score every transaction in real time.
- Understanding outcomes based on specific merchant data models and tolerance levels, combined with peer-level benchmarked data at a global scale, reduces false negatives and false positives.
- Tracking merchant-level performance over time, and automatically re-presenting transactions with supporting information, avoids time-consuming manual intervention.
- Fraud decisioning returns results within milliseconds, with no friction added to the payment processing flow.
>>> Best Practice: Work with an acquirer that has a deep understanding of fraud triggers and tolerance levels across industries, whether for an online retailer or a digital goods reseller. A partner with mass amounts of data can provide peer-level benchmarking targets—for example, whether average fraud levels are 1% or 3%—and apply machine learning to help set realistic goals and optimize approvals and reduce fraud. Employ advanced machine learning in combination with link analysis more accurately and reliably evaluates data and connectivity to proactively mitigate eCommerce fraudulent payments and refunds.
Solutions and services that optimize commerce
Payment optimization solutions that include dynamic routing, data intelligence, and fraud decisioning help businesses authorize more transactions, reduce routing expenses, protect sensitive data and mitigate fraud. Solutions, services and optimization opportunities vary depending on your industry, acceptance channels and customer profile, so finding the right partner is important. AI and machine learning are only as good as the data that feeds the algorithms, so a full-service acquirer, like Fiserv, with a significant client base is important in driving higher approval rates while keeping fraud in check.
Here are three important considerations when evaluating a processing partner:
- Work with a full-stack acquirer, not a gateway-only provider, that has access to a full range of automated payment optimization solutions, informed by a deep cache of rich data.
- Find a partner with significant experience in your vertical segment so you can understand and adjust acceptance rules to help optimize costs and improve the customer experience.
- Quantify the results. Move a portion of your business (that is, some recurring activity) to a new acquirer. Run it for a month or so to compare results against historical performance levels.
To learn more about Payment Acceptance from Carat, contact our experts today.
