Declines are deadly during this critical phase of eCommerce growth, which is placing authorization optimization and authorization rates at the center of payments planning in 2022.
As businesses become understandably obsessed with customer journeys, a legitimate customer getting declined because one’s tech isn’t sophisticated enough is tantamount to an insult. And because authorization rate determines conversion — or not — its role in the journey is vital.
“It is incredibly important that we provide a simple checkout experience which [consumers] have come to expect and that happens without much thought or effort,” PayPal Head of Enterprise Payments Optimization and Growth Sandipan Chatterjee told PYMNTS. “One common mistake that many businesses make is [overlooking] the back-end and under-the-hood processing of that payment and checkout transaction, and just focus on the front end.”
That’s a mistake, and it’s harmful to businesses in several ways.
“A failed charge is a failed customer experience for a merchant,” Chatterjee said.
He shared PayPal stats finding that 44% of falsely declined shoppers stopped or reduced shopping with that retailer, saying “a declined charge can ripple through that entire customer journey, making the transaction less profitable in the short run, but very, very costly in the long run for any merchant.”
“Businesses today lose up to 75 times more revenue to false declines than to card-not-present fraud, and it is increasing every year,” he added
Determining With Data
Some of this issue is legacy in nature, as the pandemic caused an eCommerce crush that’s generating fortunes while also introducing new attack types born online for online.
“Traditionally a lot of merchants and payment service providers have been very conservative about auth rate optimization because of risk,” but that doesn’t have to continue, Chatterjee said.
As merchants don’t manage back-end processing, the partners they choose play a critical role in helping them sort out authorization problems.
“By selecting the right partner, merchants can achieve higher authorization rates, better conversion, and reap the rewards of increased revenue,” he said. “A 2% increase in approvals could translate into millions of dollars of previously unrealized revenue.”
Chatterjee described PayPal as a model for how companies can leverage the data of major payments networks to minimize false declines. Most of the company’s solutions combine machine learning, artificial intelligence (AI) and real-time decisioning to accurately assess whether a transaction is legitimate on the spot.
“Accurately making such a determination requires access to large amounts of data in real time, at the time of payment — that’s the key,” he said. “You want to stop fraudsters [and] approve legitimate customers. This is how PayPal has been able to [improve] auth rate.”
‘Under the Hood’ of Auth Rates
Huge, dynamic data sets play a central role in authorization optimization. Combined with super-fast processing throughput, online merchants can more easily identify who’s who. But to get to the point where everyone in eCommerce can leverage those innovations, Chatterjee said, the entire payments ecosystem needs an aggressive overhaul.
“Because of this increased fraud, merchants get nervous about approving more transactions,” he said. “That’s issuers and the whole ecosystem. And that’s understandable.”
But, he added, “Legitimate users who are trying to do more eCommerce payments should always be approved. That’s the mantra that we have to follow.”
In PayPal’s case, that involves computing hundreds of fraud and risk models in real time when adjudicating a payment transaction.
“Everything under the hood is going to be extremely important as eCommerce is in this hyper growth state,” he said, and there will be a major ongoing focus for all merchants and payments partners. Specific areas of focus will guide the next 18 months.
For its part, PayPal plans to extend every capability that it offers onto its Braintree merchant platform, and not just on its own wallet.
He said extending chargeback protection into the Braintree stack “such that merchants can be protected from fraud and chargebacks for transaction types outside of the PayPal wallet” is a priority as the industry works toward “better authorization rates and better conversions.”