Any time a customer attempts to make a payment, the transaction needs to be authorized, meaning their bank confirms that the customer has enough funds in their account or that the payment isn’t suspected as being fraudulent.
Authorization rates measure the proportion of attempted payments that are successfully authorized and completed. While there are similarities with conversion rate, the two are not synonymous, as conversions measure the success of getting your customers to complete a desired action.
To calculate your authorization rate, you simply divide the number of payment authorizations by the number of attempted transactions. Understanding this data is essential for all businesses that want to optimize their customer experience and their sales.
Below, we explain how to improve authorization rates, why authorization rates are important for merchants to track, and how they relate to payment declines.
If your authorization rates are low, you’re missing out on revenue that could be the difference between the success and failure of your business. Customers can reattempt payment, but a decline could be enough to dissuade them from making the transaction entirely.
Authorization rates have a part of the control, and there are many steps you can take to improve them. Here’s how:
Digital wallet payments like Apple and Google Pay generally have higher rates of acceptance than other methods. That’s because they rely on factors like biometric data to verify the cardholder, resulting in easier and more accurate authorization.
If your business model depends upon taking payments at a future date, you can increase the chances of authorization by choosing the optimal time to charge your customer and how much to charge them. For example, if you run a rental company of some kind, you could collect 10% of the payment upfront and 100% once the rental is complete. Or you could choose to collect the payment in full and the time of booking. Which is better for you will depend on what products you’re renting and who your customers are. Strive to find the right balance between customer experience and costs to optimize your payment flow and improve your authorization rates.
Banks are understandably cautious, so anything you can do to signal trustworthiness is good. The more information you can provide in your charge requests, the more likely the customer’s bank is to verify the payment as legitimate. For example, to maximize authorization rates, you should collect and submit the customer’s ZIP code and CVC, as these are vital for credibility.
Accepting network tokens is another great way to improve authorization rates. These tokens are unique payment credentials that take the place of a credit card’s 16-digit primary account number (PAN). The advantage of a token is that it enables successful transactions without exposing the cardholder’s sensitive information to theft by fraudsters.
Making use of 3D Secure 2 (3DS2), a payments security protocol, can help to significantly improve your authorization rates. That’s because it makes use of advanced verification processes like biometrics (face and fingerprint scanning) and multi-factor authentication (One Time Passwords and other data) and uses risk-based authentication (RBA) to categorize and route transactions based on risk level with minimal disruption to the customer. That results in reduced cart abandonment and higher conversions.
Learn more: 3DS2.3 - what's new?
A reputation for fraudulent activity, such as a high rate of chargebacks as a result of customer disputes, is bound to produce lower authorization rates. The best way to defend against this is to prevent your business from falling victim to fraud in the first place. Invest in a reliable fraud detection and prevention system to identify and block suspicious activity. You can customize the rules your system uses to stop fraud and how it routes transactions depending on their trustworthiness. For example, low-risk transactions are processed immediately, while higher-risk ones prompt 3DS verification. These systems also leverage machine learning to take on a lot of the heavy lifting for you and to make more accurate decisions.
Response codes, or credit card authorization codes, are two-digit number pairings that tell the merchant whether or not a card transaction was successful and if it was declined, why that might be. Codes can indicate whether the payment was approved, a soft decline, a hard decline, or a referral. Soft declines, such as when there is a temporary issue or not enough funds in the account, can be retried. Hard declines, which can occur when a card has been deactivated or reported stolen, should not be retried. If you receive a code indicating a soft decline, you can quickly retry the payment and, hopefully, authorize the transaction.
Also, a merchant could build automation to trigger certain activities off of certain decline codes. These could be if:
1. A payment for a high-value item is declined due to unavailable funds, trigger an email to the customer with a Buy Now Pay Later payment link.
2. A 3D Secure request times out, and trigger an email to the customer with information about how to authenticate a payment through their banking app.
Download our guide on optimizing your authorization rates to learn how to diagnose declines and how to utilize key data to drive performance, as well as the value of choosing the right payment partner.
Maintaining a high authorization rate is vital to the success of all businesses, but especially online businesses. Ideally, your customers will complete their payment on the first try. When they’re not physically present, it’s easy for them to just abandon the payment altogether after even one decline.
Here’s why maintaining high authorization rates is so important:
Checkout.com provides merchants with powerful tools for boosting their authorization rates.
We give you access to granular, accessible, actionable data that offers deep insights into everything from customer behavior to how money is flowing into and out of your business. To put it simply, better data equals better performance because it allows you to respond quickly to issues and optimize every stage of your payments process. Secondly, we provide more than 150 response codes, so you can understand exactly why banks are declining payments and take steps to rectify any issues.
Start improving your authorization rates with Checkout.com today.