Customers do not like declined transactions. It is a waste of time and effort, not to mention the frustration and anxiety about possible fraud. And when this happens more than once, customers abandon their shopping carts, leading to lost sales. Hence, it should be every business’s priority to enable customers to complete their purchase on the very first try.
What is Authorisation Rate
Authorisation rate is the percentage of transactions that get approved by the authorisation process. In other words, the authorisation rate is the number of successful payment approvals divided by the total number of attempted transactions. Higher authorisation rates translate to more successful approvals and thus higher conversion on sales.
When customers make online purchases using credit/debit cards, each transaction must be authorised by their card issuing bank and card network. And in each case, the transaction can either be accepted or declined. If a payment is not authorised, the transaction is declined, and the customer is asked to try again using an alternate payment method.
Banks typically use stringent parameters to approve or decline online transactions to safeguard against fraud and misuse. However, sometimes even legit transactions do not get authorised, and this negatively impacts the customer experience. Every time a transaction is declined, it could result in the customer abandoning the purchase. Or worse, potentially moving to another competitor altogether. Studies indicate that the more customers experience declines, the lesser their chances of transacting with a merchant in the future.
The importance of higher authorisation rates
Authorisation rates have a strong correlation to sales and revenue. When authorisation rates are low, a higher percentage of transactions are declined. On facing a payment decline, customers can choose an alternate payment method or retry the process. But they don’t always do so. In fact, research indicates they would rather discontinue shopping or even abandon the order altogether. For example, Visa found that following a decline, subsequent spending by a customer tends to drop.
All of this adversely affects a merchant’s sales and revenue. However, when authorisation rates are high, more transactions go through successfully, meaning more sales and revenue generated for the merchant. This is why higher authorisation rates is a critical driver of revenue for businesses of all sizes. This is particularly true for companies catering to international customers on a large scale.
Even moderate improvements in authorisation rates can make a significant difference in profits. For example, consider a company with annual revenue of € 200 million. Increasing its authorisation rate by just 1% would make € 2 million in additional revenue.
How to increase your authorisation rates
Achieving complete zero-declines is nigh impossible. But there are some things you could do to keep your authorisation rates high.
Stay up to date on your payment situation
- Keep customer card details up to date, and replace or remove expired card-on-file details.
- Provide accurate and complete authorisation data to banks to verify legitimate transactions.
- Use correct merchant category codes and network tags to identify your business or organization.
- Set appropriate security settings to keep fraud rates low and avoid payment declines from banks.
Understand your customer
- Optimize your payments for international business if you sell to overseas customers.
- Accept digital wallets (Apple Pay/ Google Pay) as they have higher acceptance rates owing to their secure two-factor authentication.
- Consider offering flexible monthly/ quarterly payment plans to help customers better manage their cash flows and avoid declines due to insufficient funds.
- Have an informed retry strategy to avoid repeated declines. Experiment with different retry cadences to know what works best for your business and your customers.
Choose the right payments partner
- Work closely with your payments provider to understand current authorisation rates and metrics in use in your payment reports.
- Work with your payments provider to identify root causes of lower card authorisation rates and double down on possible causes.
- Choose a partner who has the right technology to improve authorisation rates. and a strong understanding of regulations and laws.
Authorisation rates are a critical aspect that you should focus on as a merchant. Understanding how they work and how you can improve them holds the key to unlocking more revenue opportunities for your business.
Jose Augustine is the Chief Business Development Officer at Novalnet AG with extensive experience in European payment industry and a knowledge powerhouse.