5 ways to improve your authorization rates

When a customer chooses to make a purchase using a debit or credit card, the transaction undergoes an authorization process to ensure there are enough funds available. Successful authorization results in an approved transaction, while insufficient funds lead to a declined transaction. This authorization is crucial for both card-present and card-not-present transactions.

Frequent transaction declines can disrupt business operations. To address this, the focus should be on improving authorization rates, fostering customer satisfaction, and boosting revenue. While there's no one-size-fits-all solution, partnering with an appropriate payment provider and implementing the following five strategies can yield better results over time.

Understanding Authorization Rates

The authorization rate represents the percentage of transactions that successfully navigate the payment authorization process, culminating in a completed transaction. ¹ Achieving a 100% authorization rate, especially for card-not-present (CNP) transactions, is challenging. However, closely monitoring this rate helps identify ways to minimize transaction declines. To calculate the authorization percentage rate, divide the number of successful payment approvals by the total number of attempted payment transactions.

1. Embrace Tokenization

One effective method to enhance authorization rates is by embracing tokenization. This involves using a token to safeguard customers' personal payment data, making it difficult for unauthorized individuals to access or steal real data. Tokenized payments boast nearly 5.7%  higher authorization rates on average compared to traditional ecommerce transactions, ² providing an added layer of security against identity theft.

2. Emphasize Digital Wallets

Integrating digital wallets like Google Pay and Apple Pay, which inherently incorporate tokenization, significantly reduces the risk of cybercrime, resulting in more secure transactions. Additionally, digital wallets offer a faster and more seamless payment experience, particularly advantageous for mobile users.

3. Utilize Card Account Updaters

Ensure your payment partner provides card account updater services, automatically renewing expired cards and updating any changes to the card details. This service ensures that customer information is always current, reducing card-not-present declines and improving authorization rates for the benefit of both merchants and customers.

4. Implement Additional Security Layers

Explore the advantages of 3DS2, a multifactor authentication protocol that extends security beyond basic card data. With features like additional security questions or biometrics, 3DS2 decreases fraud risks, minimizes friction, and enhances authorization rates. Compliance with the European Union's Payment Services Directive (PSD2) and Strong Customer Authentication (SCA) makes 3DS2 a powerful tool for securing transactions and increasing authorization rates by 10% for both Visa and Mastercard Processors. ³

5. Validate Information Accuracy

Enhance the quality of your card transactions and boost authorization rates by ensuring accurate merchant and customer information. Verify the Merchant Category Code (MCC) and, if uncertain, consult your payment partner for necessary updates. Collect comprehensive billing information, including Zip codes or CVC, to strengthen the authentication process, making it more challenging for unauthorized individuals to make fraudulent purchases.

Positive Impact on Revenue

Even modest improvements to authorization rates can significantly benefit business operations. A mere 1% increase can translate into millions of additional revenue dollars annually for large enterprises. By consistently implementing these strategies, businesses can pave the way for enhanced authorization rates and, consequently, increased revenue.

FOOTNOTES:

1. "What Are Authorization Rates and Why Are They Important to Merchants?",Payments Journal, December 14, 2020. Payments Journal
2. " Secure Payments and the Internet of Things", VISA, 2019. VISA
3. "3D Secure 2.0: What is it and How Does it Work?", Payway, 2023. Payway