Here’s a story about Chris, an honest consumer buying his partner a gift on your ecommerce site. Chris fills his cart and clicks to complete the purchase. 

Then, the unexpected happens. Chris’s card issuer refuses to authorize the transaction. Maybe Chris was shopping while on an overseas trip, the gift he chose was unusually pricy, or the issuer has low thresholds for merchants like you. Regardless, Chris gets annoyed because he’s been unjustly denied, and he blames you. So he abandons his cart and decides to shop elsewhere.

You’ve lost the sale, lost a good customer, and likely paid the authorization fee to the card issuer only for the order to be declined. And none of it feels within your control.

Is this scenario an unavoidable fact of ecommerce life? Are authorizations completely out of your hands as a merchant? No, and no, because false declines are too expensive to be dismissed as simply a cost of doing business.

The pain of erroneous payment authorization declines

Riskified’s research shows that for the average merchant, issuers decline one in every 10 ecommerce dollars during payment authorization, and 70% of these declined orders are from good customers qualified to make the purchase.

No ecommerce retailer can afford to leave that much money on the table nor risk harming these good customer relationships, especially when there are practical steps you can take to reduce issuer declines.

With the right strategy in place and an accountable partner, ecommerce merchants can:

  • Reduce false declines and decline-related fees
  • Improve the user payment experience, retention, and lifetime value
  • Increase conversions and revenue

Let’s take a closer look at issuer authorization rates and how merchants can optimize them.

What is the definition of authorization rate?

The path of a customer payment from checkout to the merchant’s bank account has multiple checkpoints to guard against fraud. The gauntlet starts with the merchant’s own approval process, which (ideally) starts with a review and then filters out fraudulent transactions without snagging good customers. 

Merchant-approved payments must then pass authorization by several financial entities, including the card networks.

This creates two key metrics for the merchant:

  • Approval rate equals the percentage of transactions that are submitted to fraud review and accepted 
  • Authorization rate equals the percentage of transactions submitted to the card networks and accepted 

If the network authorization process were a perfect system, only fraudulent transactions would be declined, and every transaction a merchant approves would ultimately convert. But it’s not a perfect system, which has some negative consequences for the merchant.

Why should merchants care about authorization rates?

Your payment authorization rate impacts your business in a number of important ways and can be a signal that your fraud prevention systems are out of balance. Businesses that don’t optimize their authorization rates face serious challenges, including:

  • Loss of control over the customer journey

Merchants invest heavily in optimizing the entire customer journey. They fine-tune their websites and apps and streamline checkouts. But that control disappears at the point of payment authorization, where many customer journeys end before they start.

Adding to a merchant’s sense of helplessness, it’s not always clear what causes a given order to be declined during authorization because banks closely guard their decisioning mechanisms.

  • An unfavorable risk profile

Authorization decisions aren’t just about the customer. Issuers also consider the merchant and set different authorization thresholds for different sellers, largely influenced by their historical track record for fraud, the risk profile of the merchant’s market and industry, and other factors. Once a merchant falls onto the wrong side of the issuer fraud algorithm, it can be hard to right the ship without putting a choke-hold on approvals. 

  • Revenue loss

With 70% of declined orders representing good orders from legitimate customers,* merchants are losing billions in revenue each year. Adding insult to injury, issuers charge merchants a fee for each declined transaction, fraudulent or otherwise. 

  • Lost reputation, loyalty, and customer lifetime value

A falsely declined order diminishes the likelihood of that customer attempting another purchase. One in three consumers will abandon their purchase after experiencing a false decline. Along with losing the goodwill of that customer, the merchant loses revenue from the sale, revenue from any future sales, and the significant sunk costs of acquiring that customer in the first place. 

Three ways merchants can increase authorization rates

With the right partner, data, and integrations, every merchant can take action to maximize both conversions and authorization rates without opening the doors to fraud. Here are three proven strategies:

  1. Maximize your approval accuracy

The fewer fraudulent payments that slip through your approval process, the higher your authorization rate and standing with issuers will be. This doesn’t have to mean clamping down on good orders. An accurate approach will deliver both high approvals and high authorizations.

For example, Riskified blocks more fraud and approves more good orders because its technology shows the big picture of fraud. Riskified’s analytics leverage rich history, the broadest network of merchants, and advanced machine learning to enable more accuracy in fraud detection. Riskified partners with merchants and works with fraud teams to fine-tune approval rates and optimize authorizations downstream. By partnering with Riskified, this apparel brand lifted its approval rates from 82% to 95% while improving overall conversions.

Better approval accuracy also builds credibility with issuers. (Issuers, payment providers, and banks across the industry know and trust Riskified as an accountable fraud partner.)

  1. Improve your risk profile

Approval accuracy also benefits merchants by improving the risk profile issuers use to calibrate their authorization algorithms. One way to do that is by sending cleaner data, i.e., filtering bad transactions, for authorization in the first place. 

Riskified’s vast merchant network and pre-authorization risk intelligence does just this — fraudulent orders are declined before reaching the issuer; thus the merchant gains a favorable risk profile and the algorithm will approve more legitimate transactions. (Note: With Riskified, you also have the option to enjoy a pre-auth and post-auth approach, offering you even more flexibility to help maintain a strong risk profile.)

  1.  Leverage integrations to help issuers approve more transactions

Integrations with card issuers enable merchants to influence authorizations by sharing more granular data than issuers can typically access, including patterns gleaned from pooled transaction data. More data and more linkage across data points provides a clearer picture of each order and greater context for authorization decisioning. 

Riskified has developed enhanced issuer integrations to provide issuers with greater visibility into our analysis so they can confidently authorize more legitimate orders for our merchant partners. Integration with Capital One reduced false declines by 25%, adding even more revenue into merchant pockets.

Result: merchants increase ecommerce revenues

Optimizing authorizations is an important way for merchants to bank more revenue and protect their customer relationships. Better authorizations can help merchants increase conversion rates without sacrificing approval rates or compromising fraud prevention. And by identifying legitimate shoppers and filtering out fraudulent orders before they reach issuers, merchants can improve and maintain more favorable risk profiles. 

Want to learn more about the power of optimizing authorizations? Talk to a fraud and payments expert today. 

*Internal Riskified data