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Payment Optimization: Increase Successful Authorization Approvals and Grow Your Revenue

By: Ronald De Bos
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Payments systems are incredibly complex, involving not only payment methods but also reconciliation, settlement, when the payment capture happens, how you handle recurring and nonrecurring payments, and much more.

With so many elements involved, measuring the effectiveness and efficiency of your payments system is crucial to maximizing revenue in the long run. And among the many payment performance metrics available, authorization rates stand out as especially crucial.

In this guide, we examine the importance of authorization optimization to overall payments optimization, along with the increasingly key role played by machine learning and the right payments partner.

The Importance of Authorization Optimization

The authorization rate, often referred to as the approval or acceptance rate, is the percentage of transactions that a merchant’s payment gateway approves during the checkout process. It’s a crucial metric for ecommerce businesses, as a high authorization rate indicates that most customers successfully navigate the payment process, leading to completed sales and greater revenue generation.

Authorization optimization, then, is the strategic process of increasing this approval rate. In the context of ecommerce, it involves fine-tuning the transaction process to reduce friction and prevent legitimate transactions from being declined.

A robust authorization optimization strategy is paramount in ensuring that potential sales are not lost due to payment issues. It enhances the customer experience, builds trust, and significantly contributes to customer retention. This fact comes into clear view with even a quick look at the problem of false declines in ecommerce.

Mitigating false declines

Also known as false positives, false declines occur when an online shopper makes a legitimate purchase using a valid credit card, but that purchase is declined when it should have been approved. These situations happen much more frequently and are a much bigger problem than you might think. Here’s what the numbers say:

  • An average of 10% of ecommerce dollars are declined during payment authorization, but up to 70% of these declined orders are from good customers who can afford to make the purchase [1]
  • 1 in 3 consumers say they won’t shop again with a merchant that falsely rejects their order[2]

This data shows that false declines not only have a meaningful impact on your near-term business results, but also on your overall brand experience.

This is why it’s so important for ecommerce brands to do everything they can to limit these occurrences and increase authorization rates for legitimate purchases. But how can brands drive authorization optimization? Machine learning is a great way to start – and finding the right payments partner for your brand can go a long way.

Machine learning to increase authorizations

Technology offers brands a solution to billing and authorization optimization. Machine learning and advanced artificial intelligence systems have led to strategies like intelligent payment routing, which allows merchants to automatically route payments in such a way as to maximize the likelihood of authorization.

These systems have also improved retry logic, which means a merchant will reattempt a payment after it has been declined, choosing the optimal time and date to improve the chance of success. This is particularly important for subscription providers who rely heavily on recurring revenue and where any increase in subscriber churn make it difficult to succeed.

Because these advanced AI systems are often expensive and complex, finding the right partner to help you navigate complexity—and lower costs in the process—is crucial to optimizing authorization rates as well as your overall payments system.

Your partner should be able to advise you on how to manage your billing systems and how to structure your payments system components to achieve the best authorization rates possible.

Better yet, a merchant of record like Digital River can help you optimize authorization rates while taking on the risk and complexity of global ecommerce expansion, from international taxes and compliance to fraud prevention and localized payment orchestration.

Want to increase global authorization rates for your brand? Connect with us today and see how Digital River can help optimize your payments system to increase revenue and improve customer satisfaction.