In today’s world, higher E-commerce authorization acceptance rates are main factor of online customer satisfaction and engagement, which can result in bigger card usage, cardholder retention, and higher revenue potential.
From general point of view authorization – is a practice within the banking industry when they’re verifying electronic transactions initiated with debit or credit card.
For PSP’s (Payment service provider) and Acquirers the Authorization Rate is one of the most important elements. It gives a clear view into the valuable statistics by tracking and comparing the number of authorized transactions amongst the all placed.
E-Commerce Payment authorization flow
What is the Authorization Rate?
To Authorise a transaction means to put the transaction on hold until the payment is confirmed. After that, the card is debited.
It is very important to track the authorization rates as they provide some insights into how authorizations are managed. Authorization rates are comparable to conversion rates, and they both can vary. Authorization rates are depending on the transaction type, like:region, currencies and other elements such as card type.
To whom it’s important?
To keep the authorization rate on high possible level is essential for the institutions or entities who work in Debit or Credit product management, authorization processing, operations, fraud, risk or information technology. It may optimize their eCommerce transaction authorization strategies and maximize revenues, while at the same time, reduce risk and provide a positive cardholder experience.
Authorization options to choose from
The Merchant in some businesses may need an authorization to persist on a customer’s account a bit longer than timespan settled by the bank.
He may choose from a few available options:
- Verify and store: requires very little development work and may also save money from processing fees in comparison to the multiple authorization system. On the other hand, there is no guarantee that the customer will have sufficient funds while processing the transaction, also the customer’s account may be not active during that time.
- Multiple authorizations: may guarantee that the customer has enough money to process the transaction, but this option requires a lot more development work, costs of fee processing may be higher and the voids may result in duplicate pending transactions.
- Authorization adjustment option: real time decline responses and authorization adjustment allow merchants to track its success rate. Unfortunately, it can only be made on Visa or Mastercard transaction and regional restrictions may also apply.
Every transaction can either be authorized or refused by the issuer. To calculate the authorization rate please use the following method:
Authorized Transactions / Authorized Transactions + Refused Transactions * 100 = Authorization Rate
For instance, if there are 500 authorized transactions processed and 100 refused, the Authorization Rate would be:
((500)/ (500+100))*100 = 83% Authorization Rate
What is important, the lower the Authorization Rate, the bigger financial loss.
How to improve Authorization rate?
Declines in transactions are unavoidable in payment transactions. Customers want a fast and secure transaction approval process wherever and whenever they use their cards. There are some possibilities of actions that the issuer can take to force a balance between higher approval rates and optimal risk management:
- Start tracking what percentage transactions has been authorized
- Get greater control over it
- Track your checkout sessions
- Check your successful payments
- Track your Webhook session
Additionally, there are some fields of improvement like, multi-currency management which may increase authorization rates up to 25%
Intelligent payment routing prevents payment failures before they even happen. This may lead to increase of authorization rates up to 5% globally
Dynamic 3D secure also has a positive impact on authorisation rate. Using it for risky transactions may decrease fraud and chargeback rate, so authorisation rates can go up 1-2%.
Expired card handling increases authorization rate for expired cards. Uplift: around 4%.
Improve your rates
At the end of the day, the customer experience should be as frictionless as possible. To avoid problems, it must be easy for customers to update account information via mobile or web and make reaching support specialists straightforward. Ease the lift needed from your team by using automated options, like card account updater.Pay attention to decline reason codes to determine if there are any trends you should act on and have a process in place to handle soft declines and resubmit, or recycle, transactions. If you take the necessary precautions and set up solid processes, you can avoid a big chunk of declines and set your company up for a higher approval rate and less money lost.