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A guide to revenue optimization in payments

A guide to revenue optimization in payments

Dec 15, 2023
Checkout.com

For many business leaders, payments are seen as a cost center; a means to an important end, sure – but one that incurs costs rather than generates revenue.

Recent statistics support this: suggesting that 16% of surveyed CFOs view payments purely as cost centers, while a further 38% are unsure about payments’ ability to drive value and growth.

As financial infrastructure evolves to meet the ever-changing demands of businesses and markets, however, this view looks increasingly outdated. Because, in fact, payments have the potential not only to reduce costs but boost revenue – providing, that is, you have the right payment processing partner. (And the right mindset.)

In this article, we’ll explore what revenue optimization is: in both a wider organizational perspective plus a payments-specific one.

Then, we’ll dive into the data to explore why revenue optimization in payments is so vital for modern businesses and how Checkout.com’s enterprise payments platform can help you retain your revenue – and extract maximum value from your payments strategy.

What is revenue optimization?

In a wider operational sense, revenue optimization is the process of maximizing your business’s revenue from the resources at your disposal. It doesn’t necessarily, involve introducing all new processes or technology – but simply pulling your organization’s existing levers to streamline and refine how your business does things to boost its bottom line.

Revenue optimization involves managing how you price products, as well as how you order and store your inventory in relation to supply-and-demand market dynamics.

Some examples of revenue optimization in a general context include:

  • Dynamic pricing: adjusting your rates, in real-time, based on factors such as demand, seasonality, competitor pricing, and customer behavior.
  • Demand forecasting: predicting future demand for products or services to anticipate fluctuations and optimize decisions around pricing and inventory accordingly.
  • Customer segmentation: identifying different sections of your customer base – and their preferences – then targeting them with tailored pricing and marketing strategies.
  • Inventory management: ordering and allocating inventory to meet demand without overstocking or understocking (mainly where perishable goods are involved).
  • Channel management: optimizing the distribution channels through which you sell products or services and managing relationships with your partners here.

For example, you could increase your turnover by offering new payment methods that customers in your target market are accustomed to. Your market research may uncover that your customers are likely to pay faster via payment links than through your website.

What is revenue optimization in the payments industry?

Revenue optimization in the payments industry is a little more refined.

In payments, revenue optimization focuses on maximizing the success of the payments you accept: be they through a credit card, debit card, digital wallet, or one of the many other alternative payment methods available.

Success is measured by your payment acceptance rate (also called authorization rate), which expresses successful payments as a percentage of all payments attempted with your business.

To calculate it, use the formula:

(Number of successful payments/number of attempted payments) x 100

Understanding your payment acceptance rate is the first step toward optimizing your revenue. A low authorization rate reflects badly on your payment processing capabilities. Worse still, it means those failed payments are upsetting customers – and that your business is missing out on vital revenue.

We’ll go into more detail below on what factors could be influencing your acceptance rate. But first, let’s take a look at why optimizing your revenue through payments is so important.

Why is revenue optimization important?

Above, we suggested that a poor payment experience equates to lost revenue for your business. But just how much revenue is that, exactly?

According to research from Checkout.com and Oxford Economics – which you can explore, in detail, in our take on the billion-dollar hidden opportunities of high-performance payments – businesses are losing out on between 1.5% and 2.2% of revenues simply because of suboptimal payment acceptance. To put that in perspective, a business with revenues of $1 billion in 2022 could have lost up to $21 million alone – purely because of their failure to adequately optimize their payment processing efforts.

One of the reasons for payment failure is a false decline: when overzealous fraud detection systems incorrectly flag legitimate transactions as potential foul play and block the payment.

An honest mistake? Sure – but still one that, in 2022, saw businesses across the US, UK, France, and Germany miss out on a staggering $50.7 billion in revenue.

What’s more, a lack of an optimized payment strategy has major consequences for businesses looking to expand into new international markets. Our research found that one in three merchants report that payment issues are currently preventing them from entering overseas markets – hindering international expansion and the growth of a global customer base.

These statistics matter because, in highlighting the woes of poor payment processing, they demonstrate why revenue optimization through a strong payment strategy is so important.

What factors can influence acceptance rates?

Optimizing your revenue and increasing your payment acceptance rates go hand in hand. But before you can boost your authorization rates, you’ll need to understand them – and that requires getting to grips with the array of factors that can influence them.

Some are out of your control; others are well within your ability to influence with a well-considered, well-optimized payment strategy and the assistance of a leading payment processing partner.

Customer- or infrastructure-related factors that influence your payment acceptance rates include:

  • The customer lacks sufficient funds in their account to complete the transaction.
  • The customer entered the wrong PIN or CVV number at the checkout.
  • The customer failed a risk assessment, such as any step in the two-factor authentication process or provided an incorrect cardholder name or address details.
  • Technical issues – whether from the acquirer or payment provider – can also result in a glitch, which results in payment failure. This might include scheduled downtime for maintenance or (less predictably) an abrupt blackout or internet outage.

Factors you can influence, on the other hand, include:

  • False declines when your fraud detection systems mistake genuine purchases for fraud. While these may seem out of your control, you can work with your payment fraud detection software provider to understand why these false declines occur and refine the thresholds at which fraud is suspected or interpreted.
  • A suboptimal checkout design. Many abandoned carts are down to a clunky or cumbersome payment process: whether it’s one that requests too much information from the customer, is too difficult to use, or requires them to log in or register for an account to make a purchase.
  • A lack of payment methods. Mainly if you’re selling to overseas customers, enabling them to pay in the way – and in the currency – they’re most familiar with is vital for boosting your business’s conversion and payment acceptance rates.
  • Issuer blocks when an issuer – the bank or financial institution that supplies your customer’s card – deems a transaction too high-risk. This tends to happen a lot if your business is in a high-risk industry, such as gambling or adult entertainment. Often, issuer blocks are beyond your control. However, you can strive to understand why they’re happening (particularly if in great numbers) by analyzing declined bank response codes from the issuer when a transaction fails.

How to optimize your payment performance and retain more revenue

Now we’ve covered what revenue optimization in the payments industry is – and why it’s such an important consideration for merchants accepting cashless payments – let’s take a look at how your business can achieve it.

Utilize network tokens

Network tokens are strings of alphanumeric digits that replace the PAN (primary account number) of your customer’s debit or credit card in a transaction.

These tokens work like references or surrogates, for the cardholder’s sensitive card information, yet – like betting chips taken out of the casino – have no relevance or application outside of the system. So even if hackers or fraudsters do get their hands on them, they’ll be unable to decode the actual data.

Using network tokens can boost your payment acceptance rate and – by removing customer pain points, such as out-of-date credentials – improve the user journey. It’s an emerging approach, but one that’s already been tried and tested by some of the world’s biggest brands: since the Financial Times went live with Checkout.com’s network tokenization solution, for example, the online publication has observed an overall increase of 1.5% on tokenized transactions.

Turn SCA to your advantage

Since Strong Customer Authentication (SCA) was introduced, merchants have had to comply with more stringent processes around verifying customers.

Despite its best intentions, SCA has led to unwarranted friction at the checkout – and 58% of consumers have been permanently deterred from a website because of an overly long or laborious authentication process. To some extent, this is being fuelled by merchants – 30% of whom are implementing some form of 3D Secure even when not required to do so by law.

The solution? Flipping SCA to your advantage by harnessing AI-powered machine learning tools – all available through Checkout.com – to facilitate appropriate exemptions on SCA. Research shows that doing this can recoup as much as $400,000 in revenue that would otherwise be lost to a slow, sticky checkout process.

Balance fraud detection with optimized acceptance rates

The rising tide of fraud presents your business with a difficult choice.

Prioritize fraud-fighting at the expense of more false declines and a lower payment acceptance rate? Or prioritize sales and revenue, but concede ground – and profits – to the fraudsters?

The answer, thankfully, is neither – especially if you utilize Checkout.com’s Fraud Detection Pro solution that, in 2022, saved merchants more than $1.95 billion in fraudulent losses.

Utilizing intelligent machine learning algorithms that learn from patterns of real fraud, it allows you to set rules that reflect your business’s model and unique risk tolerance, eschewing the need for a generic, unsuitable ‘one size fits all’ approach to combating fraud.

Implement local payment methods

The call of overseas markets is powerful and lucrative – yet it’s one that almost half (43%) of the Ecommerce merchants we surveyed are powerless to accept.
Why? Because they lack the correct payment methods to meet that growing international demand. Fortunately, Checkout.com can help you avoid falling into a similar trap by enabling your business to process payments in over 150 currencies and settle in more than 20. We’ll also help you work with local acquirers to manage FX costs better, sidestep cross-border charges, and improve the payment experience for your overseas customers.

Analyze your payment data

For a lot of businesses, missed revenue opportunity stems simply from the fact that CFOs – and their payment teams – lack the correct data to understand their payment performance.

Payments offer a wealth of data to analyze: from transactions and customers to fraud and financials, there’s a plethora of information about your products, processes, and payments you can glean to grow your business.

By assessing and evaluating the data at your disposal, you can optimize revenue by understanding which products are popular, which need to be promoted, plus which leaks exist in your conversion funnel – and how to plug them. You can also get to grips with why payments are being declined, allowing you to refocus and reorient the customer journey to give your conversions, your acceptance rates – and, as a result, your revenue – a refreshing lift.

For more information, explore our guide to using payment data to unlock business growth.

Utilize your payment partner’s knowledge

When it comes to optimizing your business’s revenue, the right payment processing partner is worth its weight in gold.

At Checkout.com, for instance, we provide over 150 detailed response codes to help you understand why payments failed and what you can do to help mitigate that issue going forward. Through our understanding of the nuances of local markets, we’ll also help you adapt your payment methods and local acquiring endeavors to the international customer bases most important to your business’s success – and optimize your retry strategies for payments that fail.

Want to know more? Explore our guide to the four steps you can take to improve your business’s payment performance, or zoom in on the topic of how a unified payments platform can maximize your company’s payments efficiency.

Optimize your payment performance with Checkout.com

Optimizing your revenue and payment performance requires more than tactics, tools, or even the techniques we’ve outlined above.

It requires a shift in your business’s mindset and mentality. One that moves away from viewing payments as a cost center or as a means to an end and toward payments as a growth lever that – if pulled correctly and consistently – will reward your revenue in kind.

Here at Checkout.com, we can help you adopt that mindset. Bringing to the table strong relationships with the payment industry’s key players – including regulators, issuers, and card schemes – we deliver a watertight approach to each payment you accept: reducing false declines and optimizing your revenue through a higher payment acceptance rate.

But don’t just take our word for it: trust the numbers. We’ve already recovered $741 million of revenue for the businesses we partner with who are using our Intelligent Acceptance product, and, during beta testing, increased the average acceptance rates of 30 merchants by 1.5%. Our services also enabled buy now, pay later (BNPL) giant Klarna to witness a massive 6% increase in acceptance rates for <€30 transactions across its key markets of the UK, Norway, Spain, and Denmark. (For the full impact of this thriving partnership, dive into the Klarna x Checkout.com case study.)

Want to follow Klarna’s lead and start optimizing your business’ revenue through payments? Download our free, in-depth high-performance payments whitepaper to learn how to start making changes in your own business. But to ensure your payment strategy is firing on all cylinders – including those you didn’t even know it was capable of firing on – we suggest getting in touch with our team today.

We’ll get to know a bit more about you and your business’s needs and find out how we can help your organization optimize your revenue – and use payments to leverage growth in 2024.

Unlock your payments potential today

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December 15, 2023 16:17
December 15, 2023 16:17